Did President Obama's Climate Change Speech Pass the Market Test?
|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.
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:
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.)