Huge market sell-off in wake of Obama re-election

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Betsi Fores The Daily Caller News Foundation
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Following the highly contested re-election of President Barack Obama, the markets experienced their biggest sell-off of the year Wednesday, with the Dow Jones Industrial Average closing down 313 points, a drop of 2.4 percent.

Traders are running from commodities and other risky assets to safer treasury bonds because of uncertainty over tax rates and regulation.

Investors were also watching the Greek Parliament, which is scheduled to vote Wednesday on a set of austerity measures that are required for the country to receive another round of bailout investment. A failed vote could a new wave of economic crisis across Europe.

There is also widespread concern that the two parties won’t be able to come up with an agreement to deal with the “fiscal cliff,” a combination of automatic spending cuts and tax increases, that may result in further peril for for the country’s public finances.

The Dow Jones Industrial Average sank more than 300 points before noon, while the Nasdaq Composite fell over 75 points. For the first time since September, the Dow fell below the 13000 mark, a threshold indicating a sign of weakness in the market. The drop off in the largest in over a year.

The volatility index, captured in the Chicago Board Options Exchange’s VIX, rose 3.2 percent, as traders moved for cover under  U.S. Treasury bonds, driving the yield on the 10-year interest rate down a 12-hundredths of a percent to 1.638.

“That is frequently a measure of fear; when investors are antsy about the global economic situation, they tend to plow money into Treasurys as a safe harbor,” the Washington Post reported.

The reaction by the market could be in response to four more years under President Obama’s tax and regulatory agenda, potentially hurting corporations and stifling business growth. The dropoff could also be spurred by the market looking ahead to an uncertain fiscal climate.

Investor and financial commentator Peter Schiff, who famously called the housing bubble and collapse of 2008, said earlier this year that a big sell-off may be coming.

“We could have a bigger sell-off,” Schiff said in a video interview. “There’s a lot of reasons for the market to go down. QE3 is coming, so I think that ultimately puts a floor under the market. I wouldn’t be surprised to see stocks selloff from current levels, but I don’t think the market is going to crash.

Both coal and oil stocks took a hit Wednesday, companies including Exxon Mobile, Chevron and Alpha Natural Resource, as well as financial firms like Bank of America, J.P. Morgan Chase and Morgan Stanley.

“Regulation is what any industry dreads the most, whether you’re in coal or in the banks,” Mike Boyle, portfolio manager at Advisors Asset Management told the Wall Street Journal. Specifically with bank, Boyle argued, “clearly we’re going to be moving toward more regulation, so I’d like to be more wait-and-see on that.”

Health company stocks, anticipating a benefit from the President Obama win and expected implementation of the Affordable Care Act, largely rallied.

Gold, commonly considered a safe insurance against currency devaluation in times of recession, dropped $1.80, or 0.1 percent, to $1,713 a troy ounce, while the dollar value went up.

“Pre-election there was the widespread view that Obama would be good for gold,” said Sonny Tahiliani, managing director of consultancy firm MacroMoves in New York, as people flee to gold in times of uncertainty.
Following the election, though, the focus will be “on the fiscal cliff and the bipartisan deal that will have to be cut, including austerity measures which run the risk of pushing the U.S. economy back into recession,” Tahiliani said in an email.
“It’s going to be worse than Europe,” Schiff warned on CNBC in October of the ultimate spending and tax deal that will need to be made. “We’ve got a bigger problem that needs to be unwound.” Schiff  then cites the $40 billion printed by the Federal Reserve each month that will push down bond rates and ultimately devalue the U.S. dollar.

The White House offered no comment on the election’s impact on the stock market, as the press line was busy all morning.

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