"I do not underestimate the enormity of the task that lies ahead."
Barack Obama's first postelection speech on the economy included that line amid discussion of plans for a stimulus package and an auto sector bailout, but the president-elect made it clear the Bush administration remains in charge until next year. The speech conveyed a sense of urgency to act in the face of the worst financial crisis in decades.
So, does it matter on Wall Street?
Investors want two things from the new president: Market stability and clarity on taxes. They got a nugget of information on both.
In his speech, Obama addressed plans for a stimulus package that should come "sooner rather than later" and called such a package the "first thing" he'd get done as president. When asked about whether he'd raise taxes on upper-income Americans, specifically in 2009, he hedged. While he repeated that the tax plan he articulated in the campaign is the right one, he did say he'd evaluate his decisions as the economy evolves. Obama's answer, while admittedly vague, suggests the new president will be flexible enough to at least consider how the economy is faring before ramping up taxes on the rich. (And, presumably, the same logic can be applied to middle-class tax cuts.) For the investor class, the threat of higher taxes obviously remains, but the door was left open, as some analysts have discussed, for a more gradual shift. More broadly, recent analysis by Oxford Analytica (via Research Recap) calls Obama "mildly redistributionist" but says economic woes will restrain the Democrats' more excessive tax plans. Basically, high taxes on high incomes that would weaken Wall Street may be in the cards, but the troubled economy could keep the most zealous plans under wraps.
As for cabinet picks, Obama said he'd move with "all deliberate haste" to pick a cabinet, including the closely watched treasury secretary post, but didn't hint at a time frame. (Betting there continues.)
There was also no mention of the Troubled Asset Relief Program or the strategy for keeping markets liquid in the face of the credit crisis, but seeing Paul Volcker and Michigan Gov. Jennifer Granholm next to the podium should give Wall Street a bit of confidence in Obama's team.
Overall, markets closed near session highs after the speech, but that was the cap to an absolutely terrible week for stocks. If the first few days of postelection trading are any indication, we're in for a rocky ride before (and possibly after) the inauguration. On Obama's first day as president-elect, the Dow fell 5.1 percent, its worst-ever drop on the day after a presidential election (see Bespoke's great chart of postelection moves). By the end of Day 2, the S&P had notched its worst two-day drop since October 1987, and a bad jobs report on Friday paired with terrible auto sector results kept late-week gains to a minimum.
The economy is still in bad shape, and markets are unsettled. Take just two other signs from today's headlines: General Motors stopped trading during the morning ahead of reporting a $2.5 billion third-quarter loss, and, just hours earlier, the Labor Department said employment fell more than expected, with the jobless rate rising to 6.5 percent. Remember, there are some 10 million Americans out of work, and that number is expected to rise. Stagnant wages and rising joblessness are rarely a recipe for rising stock prices.
The automaker's woes and subsequent bailout talk highlight the other elephant still in the room: The uncertain value of lots of assets—commercial paper, mortgage debt, corporate debt, and other sorts—is still a huge problem. By itself, as Jim Cramer noted today, all that GMAC paper floating around could create wide ripples through the economy if General Motors really grinds to a halt at a time when short-term financing markets are just starting to show some meaningful improvement. It's worth noting that just as Obama promised to explore additional policy options to help automakers, S&P announced it would slash General Motor's credit rating to CCC+ from B- after the company announced it burned through $6.9 billion in cash during the third quarter.
There is a enormous job ahead.