A side from the rise in interest rates so often cited by portfolio managers, three analysts at Salomon Brothers Inc. blame the general weakness in stock prices since their late January highs in large measure to the fall in President Clinton's approval ratings.
On top of other domestic, foreign and personal troubles, with a potential - and decidedly unpopular and ill-defined - invasion of Haiti looming, the stock market's link to the president's popularity could spell further declines in prices.
In the Salomon study of presidents, polls and stock prices, David Shulman, Susan G. Brand and Marc S. Usem found that in the near term, "stock market performance is not related to policy direction - left or right. What is relevant is whether or not the president is popular. Simply put, leadership counts."
The three analysts reviewed 40 years of polling data and found "strong markets are associated with presidential approval ratings in excess of 60% and structurally weak markets are associated with approval ratings below 50%."
"Because President Clinton's approval ratings are decidedly weak - and likely will remain that way - the bull market is not likely to resume in the near future."
Studies on the politics of the stock market are fascinating for their revelations.
Along with pointing out the impact on stock prices of other political events, Jeremy J. Siegel, professor of finance at the Wharton School, University of Pennsylvania, contrasts in his recently published book, "Stocks for the Long Run," the market reaction to President Eisenhower's heart attack and President Kennedy's assassination.
When President Kennedy was assassinated Nov. 22, 1963, the Dow Jones industrial average fell 2.9% before the New York Stock Exchange closed two hours early. Yet, the first day the market reopened, with Lyndon Baines Johnson as the president, stocks soared 4.5%.
When President Eisenhower suffered a heart attack on Sept. 26, 1955, the Dow Jones industrials fell 6.62%. That decline was the sixth largest in the post-war period.
"The fall was clearly a sign of Eisenhower's popularity with the market," notes Professor Siegel, drawing a similar conclusion about the linkage of presidential popularity and stock prices as the three analysts.
The Salomon analysis found a consistency in the market reaction to polling data.
President Clinton's approval - in response to the passage of his budget proposals, the North American Free Trade Agreement, and favorable public reaction to some of his other key policies - rose to 54% in January 1994 from 39% in June 1993. The Standard & Poor's 500 Stock Index, during that time, rose to its high of 482 in January 1994 from 440 in July 1993.
But from January to June of this year, the study notes, despite the significant decline in unemployment to 6% from 6.7%, the president's approval rating fell to 43% "under the weight of apparent foreign policy failures in Haiti, Somalia and North Korea, the Paula Jones sexual harassment charges, Whitewater, and growing disenchantment with the Clinton health care plan."
Although they concede the findings may be coincidental, the three analysts believe the correlation of presidential polls and stock prices is consistent with a long history in which the bull markets are associated with strong presidents (Eisenhower, Kennedy, Reagan and, for 1989 and 1991, Bush) and bear markets with weak presidents (Nixon, Carter and, for 1990 and 1992, Bush).
Polls matter. The stock market, in fact, is really a continuous opinion poll on the impact of internal and external events on a stock's price.
With good reason, the Salomon analysis suggests President Clinton's "consistently poor showing in the opinion polls since taking office does not augur well for stock market performance over the next few years."