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 5:07PM
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Based on history of the USSR collapse and the end of their currency, it seems like we have only two more years before total collapse of the dollar and the end of the USA.  More of the same inactivity and division fostered by BHO, along with more waste and graft on BHO's  efforts to "green" America without even a definition of that term will certainly add another 8 trillion dollars to our debt (if China still buys our debt.). China is bypassing the USA now in energy exploration, waiting patiently for the collapse of the USA before coming here and taking our resources by force of arms. We will be totally unprepared for defense by year 2014. I see no way out of BHO's attempt to destroy capitalism and the USA. 
Nov 7, 2012 5:04PM
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Obama lost every age group of white voters. Class warfare--an economic surrogate for race warfare-- may have won the election but it has definitely set civil rights back a bit.  It now appears that America is a nation of political parties where one party is built on Blacks and Hispanics versus another party of whites.  Blacks voted 96% Democratic. Hispanics voted 70%  Democratic.  And, Whites voted 72% Republican.  Had whites voted 75% Republican Romney would be President. Had blacks supported Lt. Col. Allen West in Florida an American hero would be returning to Congress to continue serving his country.

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 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 5:03PM
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overreacting to what?..................the four more years of pain this country is going to be forced to endure?
Nov 7, 2012 5:01PM
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Obama lost every age group of white voters. Class warfare--an economic surrogate for race warfare-- may have won the election but it has definitely set civil rights back a bit.  It now appears that America is a nation of political parties where one party is built on Blacks and Hispanics versus another party of whites.  Blacks voted 96% Democratic. Hispanics voted 70%  Democratic.  And, Whites voted 72% Republican.  Had whites voted 75% Republican Romney would be President. Had blacks supported Lt. Col. Allen West in Florida an American hero would be returning to Congress to continue serving his country.

Nov 7, 2012 5:01PM
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Gee, same thing that dim bulb Harry Ried said
Nov 7, 2012 4:59PM
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All this crap with the market is self inflicted.
Nov 7, 2012 4:59PM
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We need to worry about the economy,not Black evil friday!
Nov 7, 2012 4:59PM
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Are the markets over-reacting?? No, it's a big scam to punish us for re-electing Obama. Us being the public in general because I sure didn't vote for him.

 

But anyhow Wall Street is trying to show us that we are now going to suffer and lose our 401K money because they and the big corporations know that Sherif Obama is coming after them for all their scamming and stealing.

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?

Nov 7, 2012 4:58PM
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crumbs all that will be left is crumbs and your change folks one quarter 2 dimes and one penny
Nov 7, 2012 4:58PM
Nov 7, 2012 4:48PM
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the market always over reacts to after an election. send the traders to some other country.
Nov 7, 2012 4:47PM
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Overreacting?  You bet!  Wall Streeters are in a virtual tizzy over losing their man.  And after backing him with all that money, too.  So now the shekel grubbers are running for the hills. Good riddance.
The market will come back if, for no other reason, then there's no better game in town.

Nov 7, 2012 4:47PM
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The only relevant theory is "Occam's Razor," which suggests "cutting out" all the complicated stuff and leaving the simplest explanation that accurately describes what's going on. By that theory...

- NOBODY is "afraid" of a recession.

- NOBODY is "over-reacting" to anything.

- The markets are doing EXACTLY what the professional manipulators planned for them to do.
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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 4:37PM
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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 4:36PM
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The market always over reacts, the craziest people in the world are investors. The market goes down or up for absolutely no reason continuously. The only good thing is even though we all have to play in the same sand box, these nitwits make it possible to get a bargain now and then.
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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