For months, Wall Street has been blaming election-related uncertainty for hobbling the bull market in stocks. Investors say knowing the results of the election is a bullish development.
5:50PM EST November 6. 2012 - NEW YORK -- Election uncertainty isn't gone yet, but investors seemed upbeat Tuesday. Major stock indexes were trading sharply higher than usual for an Election Day. Major stock indexes were up 0.4% or higher at the close.
As investors wait to learn who the president will be the next four years, trading is typically subdued. On Tuesday, however, the Dow Jones industrial average finished 133 points higher, a 1% gain, on unexpectedly strong gains in shares of Hewlett-Packard and United Technologies.
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The broader Standard Poor's 500 index and the tech-laden Nasdaq composite index ended up 0.8% and 0.4%, respectively.
What was behind the stock market pop? A number of theories, some competing, circulated.
Linda Duessel, equity market strategist at Federated Investors, says the market is pricing in an Obama win. Why is that bullish when Wall Street has said it prefers the more business-friendly Romney? Because an Obama win all but assures a continuation of the Fed's easy-money policies, dubbed quantitative easing, or QE, that have fueled stock prices ever since the stock market low in March 2009.
Obama, unlike Romney, backs Fed chairman Ben Bernanke, the central banker who is driving the Fed policy. "Under Obama, Bernanke's QE-to-infinity policy will continue," says Duessel.
But Frank Fantozzi, CEO of Planned Financial Services, sees a Romney-led Republican sweep of the White House and Congress.
"The market's pricing in a Romney win," he says, adding that a President Romney and a Republican-controlled Congress will make it easier to resolve the fiscal cliff situation before year's end and avert economic problems that would result from higher taxes and cuts in government spending that would occur on Jan. 1 if Congress doesn't act.
Other theories include:
Money managers fear missing out on a big year-end rally, says Craig Johnson, an analyst at Piper Jaffray. He notes that November and December are historically strong months for stocks in presidential election years.
Upbeat signs that the fiscal cliff will be resolved, says Hugh Johnson, chief investment officer at Hugh Johnson Advisors. News from the G20 meeting of finance chiefs Monday in Mexico City that the U.S. vowed to avoid "a sharp fiscal contraction" next year was viewed positively by investors.
"It shows that you everybody is serious about finding a solution to avoid going off the cliff," John son says.
Election uncertainty has haunted Wall Street for months. It has recently weighed on stock prices and finding out who wins in what is expected to be an unusually close presidential race could provide a lift to the stock market no matter who wins, argues Craig Johnson, market strategist at Piper Jaffray.
"Regardless of who wins the U.S. election, uncertainty declines," Johnson stressed to clients in research note. "There will be at least certainty on what party's policies will be pursued in Congress, and the likelihood they will be enacted."
Results will not emerge until after Wall Street's close -- at the earliest, but investors have been pricing in the prospect of a victory for President Obama, who has moved slightly ahead in a raft of national polls the past few days and maintained a slim lead in crucial "swing" states, such as Ohio and Wisconsin.
Tuesday action in bond trading, foreign stock markets and the U.S. dollar was muted, as investors around the globe await election results. Worries over Greece have stalked the euro the past few trading sessions, but the currency was up 0.2% at $1.2821.
The yield on the 10-year U.S. Treasury bond rose to 1.72%, from 1.68% Monday. Many on Wall Street think bond yields could rise sharply if Republican challenger Mitt Romney wins. He has said that he would replace Ben Bernanke when the Federal Reserve chairman's tenure ends in early 2014. Wall Street's view is that Romney would replace Bernanke with a Fed chairman who favors a tighter monetary policy.
Oil prices tracked equities sharply higher, with benchmark crude for December delivery up 2.7% at $88.31 per barrel in electronic trading on the New York Mercantile Exchange. Gold prices also jumped, up 1.9%, to $1,718.70.
In Europe, Germany's DAX 30 ended up 0.7% at 7,377.76 while the CAC-40 in France closed up 0.9% to 3,478.66. The FTSE 100 index of leading British shares finished the session up 0.8% at 5,884.90.
Investors are also monitoring developments in China ahead of Thursday's opening of the Communist Party congress — the once-in-a-decade forum to name China's top leadership. Although current Vice President Xi Jinping is almost certain to be China's next leader, markets will be looking for hints on how the new leadership plans to tackle the economic slowdown.
Shares in China closed lower, with the Shanghai Composite Index down 0.4% to 2,106 and the Shenzhen Composite Index 0.6% lower at 853.33. Elsewhere in Asia, Japan's Nikkei 225 index fell 0.4% to close at 8,975.15. Hong Kong's Hang Seng lost 0.3% to 21,944.43.
Wall Street abhors uncertainty, especially related to policies that most directly affect corporate America -- taxes, banking regulations and fiscal policy.
Big investors have been reluctant to put money into the market without knowing what the rules of the game are going to be. Similarly, CEOs have been hesitant to invest, hire new workers or proceed with expansion plans until they know who will control the White House and both branches of Congress.
Still, not all uncertainty disappears after the presidential votes are counted. The winner of the presidential vote won't eliminate gridlock in Congress and partisan politics that are making it unclear how and when lawmakers will compromise to avert the so-called "fiscal cliff," a combination of tax hikes and government spending cuts that will kick in on Jan. 1 if Congress doesn't act.
The experts put "a high probability on a split government, meaning another four years of contentions debate," Bank of America Merrill Lynch economist Ethan Harris wrote in a report titled Indecision 2012.
Most money managers, analysts and economists on Wall Street presume that lawmakers will avoid going over the fiscal cliff -- or at least do something to buy time, Harris says. But he expects the negotiations to have suspense-filled moments of brinkmanship, creating market volatility.
Andres Garcia-Amaya, a global market strategist at J.P. Morgan Funds, says what happens with the fiscal cliff poses bigger risks for the market than how today's election turns out. "There is greater danger of policy error on this front," he told clients in a research note titled "The Storm of Uncertainty."
Here's how the U.S. stock market has performed on Election Days since the 1980 election, when the market was closed:
• Nov. 6, 1984: Hours before Ronald Reagan beats Walter Mondale in a landslide for re-election, and with the economy healing after a deep recession, the Dow climbs 14 points to 1,244.
• Nov. 8, 1988: The market enjoys a strong morning in anticipation of a victory by George Bush over Michael Dukakis. It holds only a fraction of the gain, and the Dow ends up two points at 2,127.
• Nov. 3, 1992: An uneventful session one day after a rally based in part on speculation that a Bill Clinton presidency wouldn't hurt the markets. The Dow ends down nine points at 3,252.
• Nov. 5, 1996: In the middle of a historic bull market, investors embrace hope that Democrat Clinton and a Republican Congress will keep each other in check. The Dow rises 39 to 6,081, within 13 points of its all-time high.
• Nov. 7, 2000: George W. Bush and Al Gore go to the wire, and investors hold their bets. The Dow closes down 25 points at 10,952. The Dow slides as much as 5% during the five-week fight over the Florida vote.
• Nov. 2, 2004: After a five-day winning streak, the market confronts the prospect that the race between George W. Bush and John Kerry won't be settled on Election Night. Late selling pushes the Dow down 18 points to 10,035.
• Nov. 4, 2008: Investors expect an Obama victory and look ahead to a new administration to confront the financial crisis and deepening recession. At a time when wild swings are common, the Dow climbs 305 points to 9,625.
Contributing: The Associated Press
Source: http://www.news.theusalinks.com/2012/11/06/stocks-dow-jumps-as-wall-street-eyes-election/
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