A President who survives, but is enfeebled by his latest "bimbo eruption", poses the worst possible scenario for the stock market, Wall Street analysts told anxious investors yesterday.
A weakened President would find it difficult to fight for initiatives favoured by the market, such as funding for the International Monetary Fund and keeping the United States open to imports.
President Clinton is widely seen as a plus for the markets. By pursuing a balanced budget, he set the stage for low interest rates, robust growth with low inflation and a powerful market. But Wall Street is worried that a paralysed White House might undermine market confidence, especially as repercussions from the financial crisis in Asia are still being felt.
"A weakened presidency poses the longest-term risk for the markets," said Mr Tom Gallagher of Lehman Brothers.
Like much of the public, Wall Street hardly cares if President Clinton had a fling with Monica Lewinsky, but analysts are concerned about the impact of the scandal on his ability to govern.
Analysts dismiss any comparison with Watergate, when the market suffered steep losses as President Richard Nixon clung to power. In 1974, the US economy was suffering from high interest rates, high inflation and low consumer confidence. Now it is the envy of the world.
The markets responded favourably yesterday to Mr Clinton's State of the Union message, especially his reminders about the soundness of the economy. In early afternoon trading the Dow Jones Industrial Averages was up 45.59 at 7860.67, building on Tuesday's 100-point rally.
This impression was reinforced by a poll conducted by CNN, USA Today and Gallup, which showed confidence in Mr Clinton had risen sharply by the end of the 90 minute speech.
The proportion of Americans confident that he could carry out his duties as President rose from 66 per cent before the speech to 78 per cent afterward, it said. The proportion who said they were "very confident" rose to 48 per cent from 33.
Before the speech, 35 per cent of people said they thought Mr Clinton set a good moral example. After the speech, this had increased to 49 per cent. The number who thought he set a poor or very poor example fell to 47 per cent from 61.