Financial markets finished down Wednesday following news of President Barack Obama's reelection. The Dow Jones Industrial Average was down 2.36%. The S&P 500 was down 2.37%. S&P industry sectors reported varied returns with the S&P Financial sector leading the market's descent, down 2.25%.
Pullback in the Financial sector appears to be due to fear of further regulation similar to Dodd-Frank reform which could slow earnings growth. Financial companies also fear a difficult outlook following decisions on the federal budget and debt ceiling. Given the expected spending cuts, financial companies foresee decreases occurring in lending demand, which could further slow banks' lending activity.
With the election now over, regulatory decisions, federal budget debates and debt ceiling discussions will now be in the spotlight. U.S. markets, however, expect to see continued growth in manufacturing jobs, specifically in the auto industry. The housing market's recovery is also expected to continue as mortgage rates continue to remain low.
Despite signs of a strengthening recovery, uncertainty is still a major market factor. In addition to weary corporate earnings growth outlooks, investors are fearful of the significant effects that tax changes will have on financial markets.
With the reelection of President Obama, markets are likely to see tax credits expiring for the wealthy and increased taxes placed on upper income taxpayers to help support improvement in the budget deficit.
Upper income investors skeptical of congressional actions could jar markets due to sell-offs in securities with high payout ratios.
World markets were also down following the day's election results. The MSCI ACWI was down 0.13%. Underlying components EAFE and Emerging Markets also fell nearly 1%, indicating slower market growth ahead globally as well.
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