Wall Street to O'Neill: Good riddance.
Markets for stocks and bonds seemed to read yesterday's news that Treasury Secretary Paul H. O'Neill and White House economic adviser Lawrence B. Lindsey had stepped down as a positive sign for the economy.
In stark contrast to the last Treasury secretary to resign his post mid-term -- Citigroup Inc. Chairman Robert E. Rubin -- O'Neill had an often tempestuous relationship with Wall Street, which considered him an outsider and an opponent of the aggressive fiscal stimulus policies it favors.
Rubin's resignation in 1999 produced a sense of foreboding among investors, who credited his leadership with producing unprecedented prosperity. But many investment strategists and economists reacted to the departures of O'Neill and Lindsey with either indifference or optimism.
"Unlike Rubin, neither O'Neill nor Lindsey ever had the full confidence of the financial world," said Donald Straszheim, president of Straszheim Global Advisors and formerly chief economist at Merrill Lynch & Co. "Their departure was not taken as bad news."
O'Neill's foot-dragging on policies, such as the major tax cuts favored by President Bush and other members of his economic policy team, was cited by many analysts as one reason Wall Street never warmed to the former chief executive of Alcoa Inc.
"He doesn't seem to believe that tax cuts stimulate the economy," said Charles Gabriel, senior Washington analyst at Prudential Securities Inc. "That got him off to a bad start with Wall Street instantly when he wasn't a supporter of Bush's first tax cut."
Analysts also cited O'Neill's inexperience in financial markets and his tendency toward brash statements that rattled investors.
"I think it's harder to hit the ground running in that job if you haven't been plugged into the financial markets on a daily basis," said Maury Harris, chief U.S. economist at UBS Warburg.
"He was an aggressive, independent thinker and Treasury secretaries are supposed to be more prudent," said Robert J. Barbera, chief economist at financial services firm ITG/Hoenig. "I can see him being an excellent CEO, but this job required him to be politic, and on that he was lacking."
The Dow Jones industrial average ended the day up 22.49, at 8645.77. It dropped more than 100 points in the first half hour of trading on an announcement from the Labor Department that unemployment had climbed to 6 percent in November, matching an eight-year high. But after the resignations were announced, the index gradually recovered.
The unemployment news pushed the euro up to $1.0091, while the dollar fell to 123.69 yen. Some analysts said the resignations helped stave off an even bigger decline, while others said they could have contributed to the fall.
Meanwhile, the bond market, which tends to thrive on a grim economic outlook, followed roughly the opposite trajectory of stocks and surged on the unemployment data before its rally tapered off in the late morning.
"Certainly after the resignations were announced Treasuries lost some of their steam," said Jay N. Mueller, director of fixed income at Strong Capital Management. "Many interpreted it as a signal there would be more of a fiscal stimulus for the economy on the way."
Asked what sort of replacement investors would be hoping and lobbying for, most analysts described an anti-O'Neill: a less-maverick Wall Street insider and a proponent of further tax breaks.
"Wall Street will be hoping that whoever they choose will be very much in tune with Bush ideologically, will aggressively push fiscal stimulus and will speak Wall Street's language," said Stephen Stanley, senior market economist at RBS Greenwich Capital.