Wall Street Rallies Around Resignations
Wall Street was never happier with Paul H. O’Neill than when waving him goodbye.
That message was clear Friday when a stock market that had been pummeled early in the day by a bad unemployment report staged an abrupt U-turn on news of the ousters of the Treasury secretary and White House economic advisor Lawrence B. Lindsey.
The Dow Jones industrial average, down more than 120 points in early trading, rebounded after the announcements to close at 8,645.77, up 22.49 points. Other stock market indicators also rose.
From Wall Street’s perspective, based on interviews with market pros Friday, the shake-up at the White House meant two things, both of them good: Bigger tax cuts are on the way, and the Bush administration finally is focused on the economy.
O’Neill “instilled zero confidence anywhere,” said Alfred E. Goldman, chief market strategist at A.G. Edwards in St. Louis. He added, “Lindsey’s IQ is probably 260, but he couldn’t communicate.”
With business confidence extremely fragile and the markets only “slowly moving into a glass-is-half-full mentality,” the administration realized it needed someone who could deliver its positive message about economic policy, Goldman said.
O’Neill apparently irritated some White House colleagues and other top Republicans by saying that a big tax-cut package was unnecessary because the economy was headed back on track. O’Neill also worried that tax cuts could add to the federal budget deficit.
It wasn’t what the White House -- or the financial markets -- wanted to hear.
O’Neill, the former chairman of Alcoa Inc., wasted little energy on currying favor with Wall Street.
As a lifelong industrialist, he emanated disdain for purely financial pursuits.
In an interview with the Wall Street Journal after less than a month on the job, he described stock traders as “people who sit in front of flickering green screens” making decisions about tiny movements in prices. It’s a job, O’Neill boasted, that he could learn “in about a couple of weeks.”
The attitude marked a 180-degree shift from that of Clinton appointee Robert E. Rubin, the former Goldman Sachs & Co. executive who was one of the most popular Treasury secretaries ever -- at least on Wall Street.
During Rubin’s 4 1/2-year tenure, the Standard & Poor’s 500 stock index rose 200% amid the strongest bull market in U.S. history. By contrast, the S&P; 500 is down about 35% since the Bush administration took office in January 2001.
Still, David M. Blitzer, chief strategist at Standard & Poor’s, said he would regret O’Neill’s departure because he found his outspokenness refreshing.
“He speaks his mind. I’ll take that even if I disagree most of the time,” said Blitzer, an economist.
Nevertheless, he added, the stock market found the secretary’s sudden resignation uplifting because it seemed to signal that the White House had refocused its attention on the economy after devoting most of its time and energy to the war on terrorism.
Wall Street has been pushing hard for the elimination or sharp reduction of taxes on stock dividends, an idea that has been on investors’ wish list for years but now seems within reach. It would be a particular boon to investors in utilities and blue-chip stocks, which tend to pay higher dividends.
The dividend tax-cut idea is “kind of exciting,” Vincent Boberski, strategist and chief economist at RBC Dain Rauscher in Chicago, said Friday. “It’s the first time I can think of that the Bush administration has done something with the stock market in mind.”
To Arthur Micheletti, chief investment strategist at Bailard, Biehl & Kaiser in San Mateo, Calif., one message was that the president had absorbed the lesson that even success in a popular military action couldn’t guarantee him a second term without economic success at home. “Bush doesn’t want to repeat his father’s mistake,” he said.
