The latest debacle in Washington should be a stark reminder for investors: politics and stocks do not mix. Oil and water have a better chance of getting together than these two polar opposite entities. Recently, and for good reason, the financial markets have been fixated on Washington to see where to go next. Unfortunately, whenever this is the case, look out below.
The way politics work makes it impossible to be good for stocks. Congress is made up of a bunch of people that represent their own districts and constituents, not the public as a whole. I suppose collectively, the public is represented, but all the fights amongst Congressmen make the greater good unlikely. The more public money a Congressman is able to spend on his own territory, the better job he is doing.
No News Is Good News
The most ideal situation occurs when Wall Street pays no attention to what is going on in Washington. That means that economic and financial issues are front and center, which is the way it should be. Any focus on Washington will almost always be negative for the markets. The debt ceiling drama is only the most recent example of this.
What’s worse is that only a select few in Washington have any knowledge of financial markets at all, and they are responsible for setting policy that has influence over all of us. This is surprising considering the economy is almost always the most important thing come election time. I guess reciting tired talking points is enough for many to vote them in office, which is a true shame.
A good way to gauge focus on Washington is to read the Wall Street Journal and watch CNBC. The media tend to go to the extremes in terms of covering an issue, so it should be easy to see. The main takeaway is that whenever you see the financial media obsessing with Washington, it is probably time to take some money off the table.
Following Up
The action in the S&P Futures from Sunday evening to Monday shortly after the opening bell should put to rest any faith one might have in the reliability of the futures to predict the day’s trading. On Sunday, the S&P’s were up about 20 points based on the debt ceiling deal, but it only took 30 minutes for the market to fall into the red. So again, ignore those futures.
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