Is Obama priced into the sell-off?

Shares sink after the president's re-election and the prospect of a nasty fight over the fiscal cliff. The market may be overreacting.

By Anthony Mirhaydari Nov 7, 2012 2:44PM

Stock market crash copyright Kyu Oh, Photodisc, Getty ImagesStocks were getting crushed Wednesday as traders reacted to President Barack Obama's re-election and the upcoming fight over the fiscal cliff. Other factors weighing on sentiment include Wednesday night's Greek austerity vote and China's upcoming leadership transition. There was no election surprise for Romney, as I was quietly expecting.

 

Still, there are signs that Tuesday's strong rotation into key sector groups wasn't a one-off fluke.

 

Moreover, I'm looking for Obama to push for a pro-business, pro-Wall Street Treasury Secretary in the days to come as an easy way to bolster confidence.


I'm not alone in seeing the silver lining. Credit Suisse analysts told clients this morning that they believe that much of the negative tax impact from Obama (capital gains and dividend rates going up) has already been discounted and that now is the time to look for positive catalysts.


* Less risk of China trade escalation. Romney said he would name China a "currency manipulator" on day one of his presidency. Beijing, wary of the attention, pushed its currency to a 19-year high as a result of Romney's pledge. This risked retaliation that will now be avoided.

 

* More potential for fiscal cliff compromise. Credit Suisse believes Obama's win further limited the influence of the Tea Party (along with losses by Tea-Party backed Senate candidates for the GOP), making a grand bargain possible later in 2013 after the lame duck session of Congress postpones the fiscal cliff.

 

* Increase in infrastructure and education spending, which will help the long-term growth rate of the economy.

 

* Obama's proposed cut in the corporate tax rate to 28%.

 

* CEOs have already reacted to the fiscal cliff and could be prone to a positive surprise if a deal gets done. Financially, the corporate sector remains in great shape despite disappointing Q3 earnings. It's enjoying record free cash flow, low debt levels, the oldest capital base since records started in 1970 (so, very depreciated assets), and a near-record gap between return on assets and the cost of debt.

 

There are also other positives for the market. Inflation threatens to push higher as the Federal Reserve considers QE4 in December -- a monthly allowance of Treasury bond purchases to complement its $40 billion run rate of mortgage purchases under QE3 -- to replace the expiring "Operation Twist" program. Obama's reelection ensures the Fed stays stimulative at least into 2014.

 

And Athens looks set to approve its latest austerity budget tonight, which will unlock another round of bailout cash and possibly additional support from the European Central Bank.

 

 

No wonder I'm seeing early signs buyers are returning to precious metals stocks after leaving them out in the cold since September. In response, I'm adding Market Vector Junior Gold Miners (GDXJ) and Eldorado Gold (EGO) to the Edge Letter Sample Portfolio.

 

Disclosure: Anthony has recommended GDXJ and EGO to his clients.

 

Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

197Comments
Nov 7, 2012 3:57PM
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"Is the Market Overreacting?"

 

No.

Nov 7, 2012 3:37PM
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Divide and Conquer by Obummer

 

It is obvious by the comments that the division of our country has worked...all that is left is to conquer and that will be done by our national debt.

Nov 7, 2012 4:06PM
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Wait there is gonna be major selling once investors understand the capital gains they will pay after January 1 2013 !! All bush tax cuts expire !! I hope market tanks and businesses move out of this country to cut off tax money that this Marxist president wants to spend on scammers and loafers who do nothing but suck the country dry !! They want free stuff !! Well, not on my dime !!!!
Nov 7, 2012 3:40PM
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MirageGuy, reality sets in and as Obama puts it 'the best is yet to come'! yeah, right in the keyster

 

Nov 7, 2012 3:28PM
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Not till tomorrow when massive amounts of IRA money will be moved about.  I would expect movement to overseas shares and out of the domestic American companies.

Gold and Silver  should see a nice rally.  

Invest overseas, buy guns and ammo, and buy Specie.   Go on the government dole if possible.  May as well collect some of your money back before the collapse.  Americans are expecting huge trouble.  That is the only explanation for the 650% increase in gun sales.  Socialism is coming.
Nov 7, 2012 4:17PM
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The markets are not over-reacting.  We the people are scared to death of another 4 years with the "worst president in history."  And his wife's entitled attitude.  And the disaster that is Valerie Jarrett.  If you were paying any attention you would be scared too.
Nov 7, 2012 3:55PM
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It has only just begun! No the market is not overreacting. This is the end to the means
Nov 7, 2012 4:58PM
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Just to tell people how stupid some of the voters are,Jessie Jackson Jr. was re-elected ,has he even been to work since June?

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I have news for you people, businesses have been moving out of this country for the past thirty years. It wasn't started by Obama and neither he nor any of the Republicans have any idea how to stop it. Why should companies create jobs in the US when labor is expensive and the real growing markets are in Asia? Tax rates are not the culprit. Growing globalization and buying up of US businesses by foreign interests is what is leading to jobs and profits going overseas.
Nov 7, 2012 4:34PM
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Think ... If I invest in America stock dividends will now be 35% taxed. If I make money on foreign investments they are tax free. Think the employee's give a hoot about the company they work for ? Nope... they are worried about themselves and if a better offer comes along they will leave. Well as an investor I am not worried about investing in America or American workers .. I as with all people and worried about myself. When the investors take their money elsewhere and the jobs dry up.. they will .. you will realize that the wealthy were needed. CONGRESS created free trade with other countries which forced business owners to shift to overseas cheap labor.. if the company didn't , their competitor did and they would be broke and out of business. When the liberal voters figure out that the AWEFUL WEALTHY PEOPLE take their money elsewhere and the government and the people receiving government handouts no longer can leech off of them... you will all be crying like the people of Greece. The wealthy in Greece still have their money .. they just are not making profit in Greece so they don't have the taxes to pay out so Greece does not have the money to pay Grecians who are waiting on their government to hand them money. Watch as the economy dries up here also .... this is the way the wealthy will get back at you. The wealty in Greece have already invested their money in foreign assets as the Euro just keeps dropping in value. This will happen here also... Go ahead feds ... print the 40 billion a month to purchase mortgages that will nose dive as the economy shrinks again.
Nov 7, 2012 4:27PM
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I think it wasn't traders "reacting" to Obama's re-election, quite the opposite. I think they pumped up the market leading up to the election, now that it is over you will see the market head on a steady downward slide. The economy sucks and it will get much worse. Government cuts start in Jan. Christmas shopping will be a bust and neither side will do what it takes to fix it, tariff cheap goods produced with slave labor and end outsourcing.
Nov 7, 2012 4:37PM
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Oh happy day...

 

It might be good for the market, but John Q. Public is gonna get cornholed good and proper if inflation spikes with QE4, tax rates increase, and those so called 'penalties'/forced insurance kick in

Nov 7, 2012 4:21PM
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ARE Markets overreacting?? NO, all investors are scared of NOBAMA's policy's he want to get pushed through and scared of the same-ole, same-ole TAX and SPEND!!
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I hate to say it, but SCAM. If you everyone things Washington is corrupt and broken, take the train up to Wall Street.
Nov 7, 2012 4:05PM
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I don't like these cold, precise perfect people, who, in order not to speak wrong, never speak at all, and in order not to do wrong, never do anything.
Nov 7, 2012 5:03PM
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Lets see, if I take my toys and go home nobody gets to play. Oh yeah, I'm supposed to buy toys for you to play with that way I cannot by any toys for me. I got it.
Nov 7, 2012 5:04PM
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I pledge allegiance to my muslum dictator, and to the socialism for which it stands, one nation to be dissolved, with turmoil and anarchy for all. God I hope im wrong AMEN
Nov 7, 2012 3:53PM
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Ahhh yes..more good news.  Have a nice day.
Nov 7, 2012 4:36PM
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I read this... then I scrolled down and saw Anthony wrote it... then got mad at myself for wasting my time on another one of his worthless articles.
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