Clinton Investigation Means Uncertainty for Markets

The political blow from President Clinton's alleged adultery coverup could trip up the equity bull market, say analysts.

But probably not yet.

Historically, bad news for a president has often jolted Wall Street. But such a politically driven slump, even when sudden and violent, usually passes as investors refocus on the underlying economy.

"I don't see the scandal having much impact unless it turns into something protracted and yucky" involving Republican opposition to Mr. Clinton, says Mary McKinney Schweitzer, a Villanova University economic historian.

The trouble with a controversy like the current scandal is it tends to make big problems seem much worse. Such a scandal undermines confidence in the ability of a besieged president to overcome sizable challenges, such as the turmoil in Asia, analysts say.

"Right now, the administration's focus is somewhere else," says Robert Sweet, chief economist at Allied Investment Advisers in Baltimore. "The scandal has to be resolved soon or it could pose a dark cloud over the market."

Facing uncertainty, investors often become skittish and prone to sell.

Journalists categorize news two ways: It either "breaks" or "oozes."

A breaking story of presidential adversity can swiftly pound the market to its knees. Wild stock selling after the Nov. 22, 1963 assassination of President Kennedy and the March 30, 1981 attempt on President Reagan's life compelled the New York Stock Exchange to shut down. But within a month of both events, the market fully recovered.

In contrast, an oozing story of scandal poses a more gradual and pernicious threat, judging at least from the archetype of such controversies: Watergate.

Months of investigations into President Nixon's cover-up worsened poor investor mood over oil prices and broad economic malaise. Stocks gradually stumbled both before and after Nixon's resignation on Aug. 8, 1974. Should the current scandal drag on with hearings and litigation, a similar meltdown is possible.

Market performance since word of Clinton's alleged affair and coverup appeared last Wednesday apparently bears out such a slow erosion: down 1 percent Wednesday, 0.81 percent Thursday, and 0.39 percent on Friday.