Clinton Tries to Calm Stock Market Jitters
President Clinton sought to calm a jittery stock market Thursday, saying that “these corrective things will happen from time to time, but there’s no reason to overreact.”
Clinton’s remarks were aimed at preventing a panicked reaction from small investors, many of whom have little experience with the stock market. The President’s comments also reflect concern among his advisers that the recent decline could get much worse if individuals who have invested in mutual funds over the last two years begin to pull out in large numbers.
“What I’m trying to do is to reassure people so that we don’t go beyond skittishness,” Clinton told reporters after visiting an elementary school in San Diego, where he is vacationing. “No one believes that there’s a serious problem with the underlying economy. It is healthy and it is sound.”
The market, Clinton said, “is subject to movements which may sometimes be a little more than is warranted by the economic circumstances one way or the other.”
Earlier in the day, Clinton received a briefing on the market from his economic advisers, who warned that the decline could last several more weeks, perhaps months, before turning around.
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After more than three years of fairly steady increases, the Dow Jones average has declined roughly 9% in the last two months as interest rates have begun to climb. Despite Thursday’s trading, in which the market closed slightly higher after an initial sharp fall, Administration analysts believe further declines are all but certain in the weeks to come.
“What you have now is a massive indigestion problem in the market,” said a senior Administration official, reflecting views conveyed to the President. The decline does not reflect any fundamental weakness in the economy, nor any real inflation pressure, the official insisted, but “unfortunately these things can go on for a very long time.”
Several prominent analysts believe the market could decline another 10% or more before stabilizing later this year--a view that Administration officials do not dispute.
“The stock market had a very rapid run-up last year,” Clinton said. “It might have been a little bit too high, and maybe a lot of this is people just kind of working that out.”
Indeed, senior Administration officials and Federal Reserve Chairman Alan Greenspan last year discussed the problems posed by an overheated market, and some analysts believe that a desire to slowly let some air out of the market contributed to the Fed’s moves so far this year to raise interest rates--a view that Administration officials who have talked with Greenspan do not dispute.
The worry now, Administration policy-makers say, is that any hope of letting the market down slowly could be washed away if the most recent round of declines triggers a panic among small investors.
Many such investors, including many elderly Americans, put money into mutual funds in the last couple of years as declining interest rates made money market funds, certificates of deposit and other forms of savings less attractive.
There is “a real possibility” that those investors, many of whom have never been through a declining market, might now pull their money out--making the decline even worse, the senior Administration official said.
Even if a sustained market decline had no impact on the underlying economy, officials concede that it could pose severe political problems for Clinton in much the same way that the last major decline, in the fall of 1987, posed problems for then-President Ronald Reagan. The problem could be particularly acute for Clinton, whose popularity among Americans seemed over the last year to be tied to their perceptions of the economy.
Given the other problems he faces and the list of proposals he has pending before Congress, Clinton could ill afford to deal with a serious stock market slump, his aides concede.
Clinton’s aides do not believe there is much they can do to stem the market decline. The President’s effort at jawboning came despite considerable skepticism from some officials, who believe that most of the market’s recent decline reflects decisions made by huge traders who are more or less impervious to statements--either soothing or threatening--from Washington.
“If we got up and started making speeches about the market, I think people would just laugh,” said one official a few hours before Clinton spoke. “I don’t like it, but we’re just going to have to go through this period.”
