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Home Publications Blogs Beat the Press Did President Obama's Climate Change Speech Pass the Market Test?

Did President Obama's Climate Change Speech Pass the Market Test?

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Saturday, 29 June 2013 07:40

It would be wrong to place too much emphasis on short-term movements in stock prices. As a practical matter they can be moved by almost anything, in either direction. Nonetheless, some folks were anxious to note a plunge in stock prices while President Obama was giving his speech on global warming as evidence that the President really meant business. For example, Andrew Revkin told readers:

"But if you doubt the reality of this shift [away from coal], just look at the news coverage from Monday of the drop in the price of shares in coal companies ahead of the speech. This headline in Street Insider says it all: 'Coal Stocks Routed as Pres. Obama Preps to Tackle Carbon Emissions.'"

Being a curious sort, I checked the price of the coal stocks listed and noticed that most had largely recovered by the end of the day, although they were down for the week. Here's what the picture looks like for the 5 coal companies mentioned in the referenced article.

pizza 28205 image001

Source: StreetInsider.com.

The average drop in price for these companies was 6.9 percent in a week that the S&P 500 went up by 1.1 percent. That seems like a pretty good hit from the President's speech. Perhaps we do have some grounds for applause.

However if we look back a bit further we might get a different impression. Here's what the story looked like:

coal stocks 31488 image002

Source: StreetInsider.com.

In the two weeks before the president's speech these five stocks fell by average of 23.7 percent, or 11.8 percent per week. This is a considerably faster decline than in the week following Obama's speech, although it is worth noting that the S&P also was down in this two-week period, falling 2.6 percent. In any case, it looks as though the rate of decline actually slowed rather than accelerated following Obama's comments. It is worth noting in this respect that the stock of all of these companies are down by more than 50 percent from their 52-week highs. Presumably this is the effect of low natural gas prices. 

There are lots of things that could explain the slower pace of decline following President Obama's speech, including the possibility that the outlines had already leaked among traders so that there was little surprise in the news. Of course if that's the case, we should not be impressed by the immediate drop associated with the speech.

Anyhow, the best takeaway from this picture is to focus on the policy itself. Short-term movements in the price of coal stocks are not likely to give us much insight into the effectiveness of President Obama's agenda for reducing greenhouse gas emissions. (Also, coal stock prices are at best a measure of future coal usuage -- there will only be benefits to the environment insofar as the replacement for coal leads to fewer emissions.)

Comments (5)Add Comment
It's the market silly
written by Jennifer, June 29, 2013 1:06
Everybody knows coal is in trouble-in this country anyway-due primarily to "market" forces, that is fracking. Coupled with the real environmental and health costs coal's future overall is poor, the stock price reflects that.
...
written by Tom, June 29, 2013 9:29
I have been tracking Medtronics and Boston Scientific for the year. These are 2 medical device makers who many conservatives said would suffer with the new excise tax put upon them by Obamacare this year. So far they have made pretty good gains for the year. I know that's only one data point, but I would have to believe if this excise was going to crush them, Wall streeters would not have them up the first 6 months of the year.
Comparing prices
written by Tim , June 29, 2013 10:54
1) Please look at the value of the firm (EV is not too bad proxy if minorities are small) otherwise you miss out leverage

2) Coal stocks globally are down, look at the EV of Yanzhou Coal or Shenhua Energy, the 'China Price' of coal is down quite a bit.

PS I love your blog, Not just mindless criticism am trying to help. If you need data on finance please feel free to get in touch
Nat Gas prices went from roughly 2 to roughly 4
written by andrewdover, June 29, 2013 11:32
Actually since natural gas prices have roughly doubled in the last year, it seems likely that the drop from their 52 week highs are not related to the recent price moves, but more the pending regulatory environment.
http://www.eia.gov/dnav/ng/hist/rngwhhdM.htm
Coal stock prices started headed downward in early 2011
written by Dean, June 30, 2013 7:42
Andrew,

I'm open to other explanations than falling gas prices as an explanation, but I doubt that the Wall Street traders could have anticipated Obama's policy that far in advance.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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