Massachusetts Senate Election Creates Uncertainty in Washington

Stock prices normally are driven by earnings and how those earnings are valued (think p/e ratios).  Earnings are impacted by the state of the economy.  The economy appears to be recovering, although slowly, from its near death experience in the Fall of 2008.  So why the 3.5% drop in the market in January?

The victory of the Republican Senate candidate in Massachusetts on January 19^th, and the implications of that victory for the passage of the Health Care legislation, or indeed the passage of any major legislation in 2010, roiled the market.

President Obama’s 70 minute State of the Union message the following week indicated that he and his people still are having trouble focusing on just a few priorities to which they might be able to get the Congress to agree

Markets hate uncertainty.  And there is nothing but uncertainty in Washington at the moment.

Tom Friedman wrote in the New York Times from the World Economic Forum in Davos, Switzerland that he was being asked about “political instability” in the United States, something he says he has never heard before.  “We’ve become unpredictable to the world” writes Friedman.  “We’re making people nervous.”  And markets hate political unpredictability.  That is why people traditionally invested in the United States, instead of in Russia, or Iran or Honduras.

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