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Why Obama May Be Wall Street's New Best Friend

Tuesday, 18 Jan 2011 | 2:14 PM ET

Candidate Obama was an anti-tax cut, pro-regulation, anti-big business populist ready to take on Wall Street and any fat-cat CEO who stood in his way. President Obama? A bit of a different story.

President Barack Obama
Photo by : Pete Souza
President Barack Obama

The president's tack to the middle began with a trickle last year when he made some key concessions on health care policy and financial reform

But since the November election, after which he famously described his Democratic Party's defeat as a "shellacking" at the hands of reformist Republicans, the move has become even more pronounced.

The post-campaign president has hired Wall Street insider William Daley as his chief of staffin an apparent means to ingratiate himself with the leaders of corporate America, struck a high-profile bargain on tax cuts, and now has put burdensome job-killing regulations on the table.

While it remains to be seen how sincere the president's conversion is, it's been a winning ticket for investors so far.

"This is where political reality meets economic reality," says Quincy Krosby, general strategist at Prudential Financial in Newark, N.J. "He's upsetting his base, but he's looking ahead. What he's trying to do is instill confidence in the group that creates jobs. What the president is doing is unambiguous. He needs to turn the economy around."

More than anything else, accomplishing that goal means creating jobs. Even as other indicators such as manufacturing and productivity indicate a budding economic recovery, the country is still wrestling with 14.5 million jobless people of working age and an unemployment rate of 9.4 percent.

No matter how much red meat Obama throws to his base in terms of stimulus spending and social issues, the immovable object of unemployment will be his greatest obstacle to re-election in 2012.

So it's remarkable though not entirely unexpected that the president now is turning his attention, according to a Wall Street Journal report Monday, to regulations that are discouraging hiring. This from someone who, as a candidate, blamed much of the nation's financial system's ills on lack of sufficient regulations.

"It's amazing how far he has moved off his campaign promises to the left, and moved over to the center-right," says Gary Hager, president of Integrated Wealth Management in Edison, N.J. "The White House is definitely going to be more accommodative of Wall Street, because they see the absolute big enchilada on the ground is unemployment. The only real way to tackle unemployment is to get banks lending and companies hiring."

The changes have not gone unnoticed by investors and traders in the stock market.

While the market's rally from August to November was fairly easily traced to indications of another round of monetary easing from the Federal Reserve, the market looked like it might stall after the election.

November was essentially a nothing month for the Standard & Poor's 500, with a modest net loss. But since then, the index has gained more than 8.5 percent, while the Dow Jones Industrial Average has added about 600 points to gain more than 5 percent.

"I'm not necessarily sure if he's becoming more business-friendly. He certainly is becoming more bipartisan," says Sam Stovall, chief equity strategist at Standard & Poor's. "Since the Republicans are typically known as the conservative party that leans more favorably toward business, one then could infer that the president is becoming more business-friendly."

The primary question left for investors may be whether the about-face is sincere.

After all, the president barely hid his contempt for Wall Street during the campaign even as many of its workers were pumping money into his campaign coffers. Employees of Goldman Sachs , for instance, contributed nearly $1 million to the Obama campaign.

The president's roundtable meetings with business leaders, such as those held at the White House on Dec. 16, may have something to do with his change in position and are seen as indicators of whether the new stance will hold.

Is Investing Back in 2011?
Why so many people on the Street say it's going to be another good year, with Jeremy J. Siegel, University of Pennsylvania, and Robert J. Shiller, Yale University.

"He had a come-to-Jesus meeting with some major leaders in this country, most of them running big corporations. I think he came out of there impressed that he needed to take a different view toward business," says Rob Lutts, CIO and president of Cabot Money Management in Salem, Mass. "If you analyze his speeches, it was always 'us and them.' What he didn't realize was those are the people who are going to create the jobs, create the environment so he can get re-elected."

Indeed, politics is never far from decision-making at that level.

The air of compromise is not unlike what often happens during the third year of a presidential cycle, when the chief executive realizes whom he needs to appease to gain re-election.

That's often the main reason why this point in the president's term has been the best for the stock market, and it was cited by numerous market experts who predicted gains of up to 20 percent for the market in 2011.

"There is a reason that historically the third year in a presidential cycle is statistically a good backdrop for the market. The reason is that the incumbent wants to win either for himself or the party," says Prudential's Krosby. "There's nothing magical about that, there's nothing existential about that. It's just a political reality, and what we're witnessing is a textbook enactment of that trend."

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