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.
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 firstname.lastname@example.org and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
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.
MirageGuy, reality sets in and as Obama puts it 'the best is yet to come'! yeah, right in the keyster
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?
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
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