Clinton Accused Special Report
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White House Crises, Wall St. Roiling

By Sharon Walsh and Robert O'Harrow Jr.
Washington Post Staff Writers
Friday, January 23, 1998; Page G01

NEW YORK, Jan. 22 – Historically, the biggest presidential crises or uncertain ties about leadership have had a jarring effect on the financial markets.

But not always. After the death of President Franklin D. Roosevelt -- a man Wall Street considered a Socialist Democrat -- the stock market climbed 4 percent.

More typical was the reaction after President Kennedy's assassination, when the market was hit by a huge wave of panic selling and had to be closed.

How the current controversy involving President Clinton and a former White House aide will play on Wall Street is not yet clear.

The allegations that the president had a sexual relationship with the former White House intern and asked her to lie about it were on everyone's lips today. But with few exceptions, analysts and economists said they believe all the titillating talk of scandal will have little immediate impact on the markets.

E.E. "Buzzy" Geduld, president of Herzog, Heine, Geduld Inc., was skeptical that the allegations had any meaning for the markets after reports of the president's troubles emerged Wednesday. "We're a long way away from people being nervous about the president having to resign or anything like that," he said.

Richard Sylla, a professor of financial history at the Stern School of Business, said today that there was much more concern among economists about company earnings and the crisis in Asia than about the president's problems.

"This business in Washington doesn't have anything to do with how much money companies will earn," he said, pointing out that the interest level is different here than in Washington.

Of all presidential crises, the Kennedy assassination on Nov. 22, 1963, was perhaps the most frightening.

Word of an attempt on Kennedy's life "hit Wall Street like a thunderbolt, throwing the floor of the New York Stock Exchange into a state of chaos and pushing stock prices sharply lower on some of the heaviest trading in history," United Press International reported the following day.

At 2 p.m., it was announced that Kennedy was dead. By 2:07, the board of governors of the NYSE had halted trading because of a panic-driven flood of orders. On Monday, Nov. 25, the exchange remained closed for a day of national mourning. When it reopened on Tuesday, buyers came into the market, "inspired by the smooth transition of federal power to Lyndon Johnson," according to "The New York Stock Exchange: The First 200 Years."

Some Wall Street players say President Nixon's troubles are more relevant to the current White House's difficulties. Nixon's resignation on Aug. 8, 1974, caused a market swoon that appeared to continue at least until Aug. 20, according to Jeremy Siegel, professor of finance at the Wharton School of Business.

But he and other analysts and historians noted that the Nixon resignation had been anticipated for some time as the events of Watergate unfolded over more than a year. These events came in the midst of a decade-long recession, which makes it difficult to assess precisely the role his resignation played in the market's behavior.

The possibility of a Clinton resignation or impeachment is currently considered a far-off prospect by Wall Street. If it comes to that, "for sure a resignation would have an impact," said Lawrence J. White, a professor of economics at the Stern School of Business at New York University. "Markets hate that kind of uncertainty. . . . But by the time the president is packing his bags and waiting for the helicopter on the South Lawn, the markets will already have anticipated and discounted it."

There was some concern this morning that stock prices might be reacting to news reports of possible Clinton wrongdoing after the market opened with an 80-point slide. The Dow Jones industrial average ended the day at 7730.88, a decline of 63.52 points.

Stocks of tobacco companies were the one sector said to be feeling the influence of Clinton's troubles.

"The tobacco investors clearly are going to feel more anxious. . . . They were looking to him for leadership" in brokering a settlement of litigation against the tobacco companies, said Ellen Baras, a tobacco industry analyst with Nesbitt Burns Securities in Chicago.

"It's bothering the market," said Elizabeth MacKay, chief investment strategist for Bear Sterns & Co., noting that both stocks and bonds were down. "It's the president of the United States. If he's involved in some kind of a scandal, that hurts confidence."

But others said they believed the market would have behaved in exactly the same way today if there had been no allegations of presidential misconduct.

"I wouldn't even be thinking about the impact if not for calls from the press," said Hugh A. Johnson Jr., chief investment officer of First Albany Corp. "People will take it a little more seriously as it evolves."

No one said they thought the president's problems would cause investors to shift from stocks to bonds or take money out of the market. But they noted that there is an elusive emotion that can overtake the market and contribute to investor concerns. "A situation like this contributes to market problems by sapping spirits and demoralizing investors," said Johnson. "It's very sad."

Staff researcher Richard Drezen also contributed to this report.

© Copyright 1998 The Washington Post Company

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