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 8, 2012 10:33AM
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I'm liking the direction we are going in. Every person is selling off. Every financial pariah is buying. Pretty soon, the massive false bubble will be wholly contained in the financial sector. we pull that plug, jail a bunch of paper pushing button pressing pariah at GITMO and forget to feed them.

We're going to progress out of this. It takes WORK. Not fake administrative work... REAL work like labor. Don't like it... relocate.

Nov 8, 2012 8:17AM
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Duh!

 

The voters will now see how bad it can get!

 

And Anthony...you added some more Gold Investments I see. Gold loves bad things, and it has been known as a forecaster of bad things and reacts to bad things.

 

It don't look good to me, buddy!

Nov 7, 2012 11:17PM
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Total childish over reaction but it gets the pipes cleared so we can focus on business at hand.  We got unemployment going right direction, consumer spending for holidays and Fed keeping the pumps primed. I'll bet the two parties don;t want to screw it up all over again.
Nov 7, 2012 9:59PM
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Obama is slowly destroying the country through socialism and he is fueled by the ignorance that elected him. His policies can't fix anything and has proven it can't. It only destroys. The pot will boil over within a year and the people's patients will end. The ironic thing about it; the most impatient one's will be the same people that elected him. Why? because the free and  easy money simply won't be there.
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People if you do not like where this country is headed please feel free to move to another one. I am sure you were all taught...If you don't have anything nice to say then don't say anything at all.  Stop being disrespectful and racist!
Nov 7, 2012 8:34PM
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This whole fall today is only Wall Street manipulating the markets. They have for two weeks done everything to drive down stock prices. They wont even consider good news. Its there game they have played for decade. Investers have caught on to the con game and continur to keep money away from the street. Its plain and simple a ponze scheme they say is legal!!
Nov 7, 2012 8:22PM
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rich people are just pissed cuz they'll have to start paying their fair share of taxes.
Nov 7, 2012 8:08PM
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Tomorrow will be better

 

anger and greed

Nov 7, 2012 8:04PM
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all of those who dumped thier holdings and now blaming President Obama for that are the same one

who will start buying tomorrow

 

My friends it is called  GREED no more No Less

 

 

Nov 7, 2012 8:01PM
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MARKET WAS NOT OVERREACTING -- MARKET WAS ILLEGALLY SHORT-SOLD AND THE PRESIDENT WILL BE LOOKING INTO THIS. SHORT-SELLING SHOULD BE ILLEGAL.

 

lots of talk below about retirement this and that. Romney stated he would eliminate federal employee matching funds to retirement and encourage the private sector to do the same. Romney said he would encourage all to do a high-5 years for retirement calculations instead of high-3 years of service. I could go on and on about how Romney was going to screw the middle class out of a retirement but you GOP-lovers won't listen to the truth. It doesn't matter - that horrible fanatical monster is gone forever and I can sleep nights now. I GUARANTEE you between now and 2015 the gains in the stock market will be astronomical. I think Europe is in much better shape because the worthless GOP Congress hasn't addressed our budget but eventually we will get there. GO LONG ON STOCKS AND AVOID GOLD. OBAMA!!!!!!

Nov 7, 2012 7:55PM
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Uhhh.  Could it also be that if we go off the "Cliff", dividend and capital gains taxes go up?  If Congress doesn't fix that we will see a give back of all the Fed induced run-up we have enjoyed since 2008.  I don't care how healthy corporations are, it's about how much Joe investor gets to keep.
Nov 7, 2012 7:42PM
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The bottom line here is Mitt Romney was not the man for the job.  Most of America realized it, but some never will.  The Republican Party is dead right now and George W. Bush killed it four years ago.  Barack Obama is the right man for the job and that is why so many different people from all kinds of backgrounds supported him.  If so many Republicans had not crossed over and voted for Obama, he would not be in office today.  The American public is sick of Republicans traveling backward instead of forward.  I'm a registered Republican that voted for Obama in both elections because John McCain and Mitt Romney were not the right candidates for President.  Just like Al Gore and John Kerry were not the right candidates in 2000 and 2004.  Unfortunately, hindsight tells us now that George W. Bush was the wrong candidate too.  Let us all get behind our President now and help him solve our problems instead of fighting about who should have won the election last night.  Even Mitt Romney said that last night.    
Nov 7, 2012 7:40PM
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We elect a President to grow jobs. He never ran a snowball stand. His color NOT his character won the vote. America is in trouble at home and abroad.

 

This man is a slick talker nothing more nothing less 

Nov 7, 2012 7:28PM
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He didn't care the first time, now he is a lame duck.  You are under reacting.
Nov 7, 2012 7:26PM
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If the majority of people voted for obama, why is it that every pro-romney comment here has 2 to 1 thumbs up, and the pro obama posts are 2 to 1 thumbs down....?  did we really just vote for socialism overwhelmingly, or did someone or many someones just pull off the greatest scam in election history??? (at least US election history)?  DISTURBING.
Nov 7, 2012 7:25PM
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Today's selloff:

 

1.  Knee-jerk reaction. 

2.  Sour Grapes.

3.  Idiocy.

 

Moreover, since the odds of the election's results were quite high by statistical analysis, yesterday's rally made about as much sense as today's selloff.

Nov 7, 2012 7:22PM
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We will be fine. It isn't our first rodeo. This is the same President the presided over the 7,000 point increase of the past 4 years. Calm down, go buy something American. Maybe an apple pie.
Nov 7, 2012 7:18PM
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Looks as much like vengeance as any real belief that Obama's reelection spells disaster for America.  The ones with the most money spent good money to ensure Romney's victory and are likely reacting by committing some form of stock market hissing fit in response to their unhappiness with the electoral results.

Nov 7, 2012 7:12PM
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Overreacting? Just back up four years to the last election and the drop from then till the next spring.

Good luck with that theory.

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