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.
Stocks 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.
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looks like the rich are having a tantrum.lol.selfishness and greed lost get over it
all you people who are in a flaming mood today... get over it.... the President is still the President and there is no reason for you to take your ball and go home! Which brings me to this Wall Street nose-dive.... just another bunch of winers acting like petulant little children... they didn't get their way so they are traching the market in a hissy fit. There are no other indicators that are happening, or have happened over the last month, except the election, to cause this tumble.
Tell me this ISN'T a prime example of why we should have MORE Wall Street Reform.
We should line up all the Wall Street Robber barons behind "The Donald", march them to the nearest border and tell them to get the hell out of "OUR" country!
The serve no purpose but to be a waste of good oxygen...
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Tighter regulations and the end of a lengthy bull market in bonds have changed the landscape forever.
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