Obamania: Presidential Inauguration Offers Nothing New for Markets

There's a major contrast between the chaotic optimism in Washington, D.C. and the pessimism in financial markets. Record crowds are filling the streets in the nation's capitol, but judging by the first hour of trading, it almost appears markets are disregarding the inauguration of 44th President of the United States.

Paul Ashworth, senior U.S. economist at Capital Economics, said there's no reason to expect financial markets to react with the optimism seen in the streets.

"There's no magic solution to the problems in financial markets, credit markets, and the economy," he said. "You could argue the new administration will handle this in the best way, but again, there's no way to solve this in a stroke."

Ashworth said the Presidential Inauguration could provide a "nice, short-term boost to confidence," but people will realize soon enough that the downturn will continue. Even if markets are at or near the bottom, the economy isn't expected to show any growth in 2009, he added.

"It's possible we're close to the bottom of the market, but markets lead the real economy by many months - perhaps 12. I certainly don't expect the U.S. to expand again this year," he said.

Fixed income strategist Ian Lyngen from RBS Greenwich added that markets have bigger issues to worry about.

"While the populous might be interested in Obama - it's an issue the market has been pricing in for a while - so we are detailing with the UK bank bailouts, mass of potential issuance over the course of the next few months, and the ramifications of the real potential the U.S. (and global) economies may be slowing further still."

Lyngen said there should be "less talk about the massive optimism on TV and more about the harsh economic realities and borrowing needs facing the real economy at this point."

As for whether Obama's first speech could give the U.S. dollar a boost, Ashworth said the speech is simply a time to provide "a message, a broad-brushed message, but not any specifics on the economy, and certainly not any proposals on a stimulus package."

He added that markets react to news, but that there's little news today? "He's already laid out what he's going to do," Lyngen said.

As of 10:38 a.m. EST, the S&P is down 19 points or 2.2%, the Dow is down 129 points or 1.56%, and the Nasdaq is down 38 points or 2.49%.

Barack Obama is scheduled to be sworn in around Noon EST, followed by his first speech as the 44th President of the United States.

By Patrick McGee, pmcgee@economicnews.ca, edited by Stephen Huebl
©CEP News Ltd. 2009