So, What Really Drives the Stock Market?; Politics Certainly Can Play Role, But From Teapot to CIA Leaks, Economy Has Had Lasting Impact
FOR THE STOCK MARKET, a big Washington scandal usually is little more than a tempest in a Teapot Dome.</br></br>From President Harding's Teapot Dome scandal -- named for a Wyoming rock formation atop a misused government oil reserve -- through the Clinton impeachment, stocks have proved remarkably impervious to news that has roiled the political world.</br></br>It happened again last week. Thursday's stock tumble was influenced by reports that White House aide I. Lewis Libby was about to be indicted. But stocks quickly rebounded Friday even before the indictment was announced. Down 115 points on Thursday, the Dow Jones Industrial Average soared 172.82 points on Friday to 10402.77, up 187.55 points, or 1.8%, on the week.</br></br>Some of Friday's advance, certainly, reflected investor relief that the waiting was over and that Karl Rove, president Bush's political guru, wasn't indicted. But the investigation of White House leaks continues and Mr. Rove remains in legal jeopardy. When the indictment was announced during the day, the market fell, but just for a few minutes, before resuming its rise. Traders said Friday's gains appeared to have less to do with politics than with economics. They reflected pleasure that the government's report on third-quarter economic performance, also out Friday, included low inflation figures and good growth numbers.</br></br>And that is the way it usually goes with political scandals. Corporate profits, inflation and interest rates are what drive stock prices. Unless political news affects those things, by making a tax increase or an economic slowdown more likely, its impact on markets tends to be short-lived.