January 22, 2010 / 7:54 PM / 9 years ago

Factbox: Obama's policy proposals have rattled markets

NEW YORK (Reuters) - U.S. stocks fell for a third straight day on Friday, one day after suffering their worst drop since October after President Barack Obama picked a fight with big banks, in the latest dose of uncertainty over his agenda.

The upset election of Massachusetts Republican Scott Brown to the U.S. Senate earlier this week, however, shifted the landscape on other measures sought by Obama. Brown’s election, filling the vacant seat of the late Edward Kennedy, robbed Democrats of the crucial 60th vote that gives them the super-majority to clear Republican procedural hurdles and pass legislation without a single Republican vote

Here is a brief look at the implications of Obama’s legislative priorities since he took office in January 2009 and how the financial markets have reacted to them.

HEALTH CARE

The election of Brown to the Senate robbed Democrats of the crucial 60th vote they need to pass the long-debated health-care bill, which was in the final throes of being negotiated before the special election to fill the vacant seat of Edward Kennedy.

A Democrat, Kennedy was long a proponent of health-care reform. Brown has vowed to vote against the overhaul. Reform efforts aim to expand coverage to millions of uninsured Americans and prevent companies from denying coverage to people with pre-existing medical conditions.

Democratic lawmakers promised on Wednesday to move forward on the bill. Brown said he would like to send the measures back to the drawing board.

Uneasiness about the overhaul limited health-care sector gains last year, but Brown’s victory has propelled healthcare shares higher, making the sector the best performing sector so far this year. The S&P healthcare index is up nearly 3 percent since the beginning of the year.

FINANCIAL REGULATION REFORM

Brown’s election will also make it more difficult for Democrats to win Senate passage of their proposals to tighten bank and capital market oversight.

Obama and his party want to overhaul financial regulations to prevent a repeat of the 2008 capital markets crisis and the recession and bank bailouts that followed.

This week Obama tried to get in from the growing public anger about some of the excesses on Wall Street, proposing new restrictions on bank risk-taking.

The market responded by sending shares of big banks down sharply. Goldman Sachs slid 4.1 percent and JPMorgan Chase & Co shed 6.6 percent after Obama proposed limiting how banks invest their own money.

Typically any regulatory move that threatens to squeeze profits in the financial sector won’t go down well with Wall Street.

The benchmark S&P 500 is off nearly 4 percent in the past 3 days, after hitting a 15-month closing high on Tuesday.

CLIMATE CHANGE

Getting climate change legislation passed this year was already going to be tough. With Brown’s election, it just got tougher.

The U.S. House of Representatives passed a bill last year to reduce industrial emissions of carbon dioxide (CO2) and other greenhouse gases, but similar legislation has stalled in the Senate.

Opponents argue that a planned cap and trade system, which would limit the amount of CO2 companies can emit and create a mechanism to trade permits allowing them to pollute more, would hamper industry at a time when the country is still recovering from a deep recession.

Brown campaigned against cap and trade, saying it would saddle consumers and businesses with higher costs. The legislation is seen as crucial to forging an international agreement to fight climate change.

While there has been little traction on the climate change front, Obama has pushed for investing in so-called green technologies. For investors that has meant betting on such plays as solar technology. But until there is more clarity, investors are poised to tread cautiously.

Focus would also be on the prospects for smart grid technology as power companies like Dominion Resources Inc push investments into smart grid infrastructure. Coal companies, including Peabody Energy, Alpha Natural Resources and Arch Coal would be watched for how they intend to approach clean coal technology, as will nuclear power generators such as Exelon Corp.

UNEMPLOYMENT AND JOBS MEASURES

Despite the weakened Democratic majority in the Senate, there is likely to be strong congressional support for efforts to fight unemployment. Republicans might be reluctant to block such a measure but could aim to push Democrats to include a greater focus on tax cuts.

With the U.S. public overwhelmingly concerned about double-digit unemployment, Obama wanted to spend the better part of 2010 focusing on jobs. Brown’s upset election may bolster the resolve of Obama and his Democratic allies to pass a job creation bill soon.

The White House sees the poor job market as a driving factor behind Obama’s sagging popularity and the political setbacks Democrats have suffered.

Obama has proposed a series of measures including small business tax cuts and infrastructure spending. These steps would be on top of the $787 billion stimulus package he signed last February. The House of Representatives has passed a $155 billion jobs bill. The Senate is expected to offer its own version of the legislation.

But suggestions of more spending have hurt U.S. treasury debt as investors fear more supply will hurt the value of their holdings and the dollar has weakened on the prospect of rising deficits.

Compiled by Ellis Mnyandu; additional reporting by Jeff Mason in Washington; Editing by Leslie Adler

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