Market optimistic despite more bad jobs news; Is media ignoring impact of possible GOP gains in November

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Washington Examiner:

Market optimistic despite more bad jobs news; Is media ignoring impact of possible GOP gains in November?
By: MARK TAPSCOTT
Editorial Page Editor
08/05/10 6:40 PM EDT

More bad news for the economy with word that unemployment appears to be creeping back upwards, as the Department of Labor says more than 479,000 first-time unemployment claims were filed in the week ending July 31, an increase of 19,000 claims over the prior seven days' total of 460,000.

But the stock market seemed almost unfazed, with the Dow Jones Industrial Average dropping a mere 5.5 points to 10,674.98 on the disapointing unemployment figures.

In fact, the market has been very much in the black for more than a month, rising from just below 9,800 only a month ago.

Further marking the apparent optimism on and about Wall Street is the latest survey data on investor confidence. Scott Rasmussen's Investor Confidence Index was up three points today, leading the pollster to observe that "at 97.6, confidence is now up 15 points from a week ago as well as a month ago."

Do market mavens know something the general public doesn't? Why are stock values rising at a time when unemployment remains at recession levels and seems poised to stay in the recessionary range for a long time?

One explanation for the smiles on Wall Street likely traces to recent upbeat corporate profit reports, according to veteran business journalist Stuart Varney of Fox Business News.

"In the background there is a feeling that the GOP might retake the House and certainly get closer in the Senate," Varney said. "That's a positive because it suggests the Bush tax cuts may not be allowed to expire after all, at least for now."

The Bush tax cuts of 2001 and 2003 are scheduled to expire on New Year's Day, 2011, with a result that marginal rates for all taxable income brackets will increase, some as much as four percentage points. Economists generally agree that increasing taxes is not a good during an economic downturn.

But President Obama and Democratic congressional leaders appear determined to stick with their promise to let the Bush cuts expire on schedule.

Tuesday's election results in Missouri may be giving them second thoughts. however, as 71 percent of voters there approved a ballot measure that banned measures requiring individuals to purchase health insurance. The results are a direct slap in the face of Obamacare, which is also being challenged in federal court by 20 states.

Republicans need only gain 40 House seats to regain the majority in the lower chamber and more than a few observers are saying the party could gain 50 or more seats.

In the Senate, the GOP would need to gain 10 seats to regain the majority, but the party's prospects there are much less positive, with the experts now mostly predicting gains of four to six.

But everything changes in the nation's capital even if the GOP "only" takes back the House and significantly bolsters its ranks in the Senate.

"A more profoundly GOP Congress could extend the Bush tax cuts, that's the really big one," Varney said. "Obama might swallow a one-year deal. If you're an investor, that's a possibility."

Varney is not alone in thinking the prospect of big GOP gains in November could be giving investors reason for optimism as they try to factor in the possibility in their outlooks.

Diana Furchtgott-Roth, former chief economist at the Department of Labor and now director of the Hudson Institute's Center for Employment Policy, thinks "there’s certainly a link between recent stock market gains and improvement of Republicans at the polls."

But where Varney sees the possible extension of the Bush tax cuts as the main factor in such calculations, Furchtgott-Roth points to additional consequences.

"If the Republicans take the House and make gains in the Senate in the fall elections, they will have an incentive to prove that they’re fiscally-responsible and capable of taking the presidency in 2012," she said. Furtchtgott-Roth also writes a weekly column on economics issues for The Examiner.

"That means smaller spending bills, sent to the president on time; fewer economically-damaging regulations, such as financial regulation, cap-and-trade and the Employee Free Choice Act; and more oversight hearings on topics ranging from FDA oversight to Justice Department treatment of the Black Panthers."

Varney acknowledges there are other factors that should be considered in assessing the market's recent rise, but he also wonders why the media isn't talking about the potential impact of GOP gains as a positive influence on the market.

"It's one possible reason that I'm putting out there, but I'm not saying it's the only reason," Varney told The Examiner. "But it's there and maybe it's being ignored by the media for partisan reasons. I don't know."