Posted on 02/07/2007 8:23:28 AM PST by CyberAnt
How much can an ambitious Congress and a bunch of journalists shake Wall Street?
On Jan. 25, stock prices of several credit card companies took a beating.
Shares of Mastercard tumbled 3 percent from their previous closing price.
American Express dropped $1.16, and JP Morgan Chase fell 15 cents before plunging a further 51 cents the following day.
In a hearing that Thursday, the Senate Banking Committee had assailed the industry for its aggressive marketing practices and the steep penalties it slaps on borrowers.
The committee chairman, Sen. Chris Dodd (D-CT)[candidate for President], delivered a warning: “I would like to put the credit card industry…on notice.”
The reports that hit the financial wires surely made the credit card executives wince.
“Senate targets credit card practices,” one teaser on Yahoo! Finance read.
“Critics seek clampdown on credit firms,” Reuters wrote.
But more importantly, those headlines rattled the market.
The episode illustrates the phenomenon of “headline risk,” or the damage a negative news story causes to a share price in the absence of any fundamental change to the company’s prospects or the business environment.
Political intelligence consultants in Washington, who advise hedge funds and other investment firms, say they will be warning their clients about this bugbear far more often in the new Congress.
“I think the issue of headline risk will be bigger this year than it has been in the past,” said Rick Weissenstein, a consultant who tracks the political risk to the healthcare sector for the Stanford Group.
What about Hillary's plan to take all the oil profits and invest it into alternative feuls. Can't imagine such talks of National Socialism helps out oil stocks.
People have short memories. The October 1987 crash was caused directly by a proposal of Rep. Dan Rostenkowski to start taxing stock trades.
Well .. it might be a problem if Wall Street believed for one moment that she could pull it off.
I think the headlines in the article were about Congress "investigating" corporations. That tends to make stock owners nervous.
Hugo Chavez is walking headline risk.
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