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Obama wins. Now the hard part

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by Peter Switzer

OK, so Obama has won the job to be world’s number one man, but now the hard part — avoiding the fiscal cliff. This all comes as Wall Street has shown how out of touch it is with Main Street America, with investors dumping stocks as a response to an Obama victory. Of course, the real reason for the big sell-off should be the looming fiscal cliff and the likelihood of a Congress big barney over how it is avoided.

You could also throw in the higher tax plans of Barack Obama as another reason for the share sell-off overnight.

Wall Street reacts

Of course the real lesson is, as I argued yesterday, rumour-leveraging traders and short-seller types are always behind these kinds of volatile days on stock markets. The unknown of the victorious Obama versus the vanquished Republicans is bound to create press fodder that will spook stock markets.

The negative reaction was significant with resistance levels around 13,000 on the Dow and 1400 on the S&P 500 taken out over the trading day. This gives us a preview of what’s in store if the Congress plays silly games.

The smart game is to reduce the economic growth negative effects of the automatic tax and spending changes, which, if enacted in the New Year, will push the US economy into recession.

Local stocks will cop it today and we’re now moving into a buying opportunity phase as the Republican-dominated House of Reps and Obama’s Democrats in the Senate battle it out.

The Dow finished off 312.95 points or 2.36 per cent to finish at 12,932.73. Meanwhile the S&P 500 lost 33.86 points or 2.37 per cent to end at 1394.53.

The VIX or fear index has shot up over 19, which is still low, and at one stage the Dow gave up 370 points, so you can see why fear is back in fashion.
These are challenging times with the likes of Apple now down over 20 per cent since it’s all-time high!

Keep an eye on Europe

Adding to market woes was a poor economic assessment for the EU region from the ECB which said the slowdown was even heading towards Germany, which should not be that surprising given that its European partners are key customers.

Also the Greeks are to vote on another austerity package and so expect Athens to hurt stock player’s confidence in coming weeks. Once again, I’m treating this as a buying opportunity but I could be caught out if the Yanks screw up with their cliff negotiations and stocks go even lower than I expect.

Fiscal cliff concerns

Despite all of this, don’t get too worried about early day reactions to an Obama victory as his first win brought a big sell-off too but since he has been in, the Nasdaq went up 95 per cent!

We’ve had a nice run on stocks and now its time for a bit of pressure until the fiscal cliff matter is sorted.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Thursday, November 08, 2012

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