Good morning. Talk about a disappointment. No, not that fact that just about one-half of the country is bumming that their guy didn't win the presidency. But rather the amount of time, energy, and money (more than $2 billion) that went into the election. After more than a million television ads, countless dollars spent, and six months of worth of campaigning (while our elected officials effectively put the important issues of the country on the back burner so they could tend to their "real jobs" of getting re-elected), nothing changed. So, in the immortal words of William Shakespeare, the entire ordeal appears to have been much ado about nothing.
Apparently, I'm not the only one who feels this way. According to Bloomberg, former Federal Reserve Chairman Alan Greenspan said "the election perpetuated the political status quo and hasn't increased the probability of resolving the fiscal challenges." Greenspan added that he's "concerned that the election per se has really not changed" the likelihood that policy makers will be able to avoid sending the economy back into recession.
Next up, Barclays cut its year-end estimate for the S&P 500 by 5% on "concern a divided American government will delay a resolution over spending cuts and taxes." And PIMCO's guru Bill Gross said that stocks are worth 5% to 10% less if Washington sends the economy over the fiscal cliff and taxes on dividends and capital gains are hiked in less than two months' time.
Then there are the ratings companies. Don't forget that although S&P downgraded the U.S. credit rating after the first go-round of the budget battle last year, the other two major rating agencies did not. However, Fitch fired a warning shot over the capitol dome on Wednesday saying Washington needs to avoid the fiscal cliff or face a downgrade to the country's AAA credit rating.
"The economic policy challenge facing the president is to put in place a credible deficit-reduction plan necessary to underpin economic recovery and confidence in the full faith and credit of the [United States]. Resolution of these fiscal policy choices would likely result in the U.S. retaining its AAA status from Fitch," the ratings agency said Wednesday.
At issue though is the bottom-line fact that nothing changed after Tuesday's election. My apologies for the restatement of the obvious, but the democrats are still in the White House and the Senate, while the republicans still control the House of Representatives. And since this combination has worked out so well over the past two years, it is hard to see how anything is going to change. After all, the election was close and as such, the White House doesn't exactly have a mandate. And with the Republicans still controlled largely by the conservatives, well, I'm not encouraged about the possibility for progress.
Apparently the stock market felt the same way on Wednesday as the major indices suffered mightily. The DJIA had its biggest point drop of the year and the indices shed more than 2% across the board. Those areas affected most by the expectation of more government regulation/intervention such as the banks were hit hard as the banking index plunged -4.56%. Traders were also less than enthusiastic about the potential for economic growth as commodities took it on the chin. And the tax-selling in Apple (NASDAQ:AAPL) continued as the shares shed another $22 to close at $558.
But to be fair (and accurate), the stock market didn't begin falling on the basis of more of the same in Washington. No, the futures were actually up 4 or 5 points with 2 hours to go before the opening bell. It was actually comments from ECB President Mario Draghi that initially upset the apple cart. Draghi said that things were getting worse in the Eurozone and that even Germany was beginning to show signs of wear. And to be sure, the algos knew what to do with that as the euro dove, the greenback rallied, and traders turned the risk trade to the "off" position.
However, it is important to note that the futures closed the pre-market session pointing to a loss of about 100 Dow points. But within minutes of the opening bell, the stock market decline began to accelerate and at one point the DJIA sported a loss of 369 points. So, while there are lots of excuses to go around including uncertainty over the fiscal cliff, worry about Europe (there is yet another decision to be made on Greece this month), positioning for higher tax rates on dividends and capital gains, and worries about earnings and global growth, I believe that it was the realization that the election had been much ado about nothing that weighed yesterday.
Turning to this morning ... Asian markets followed Wall Street lower while European bourses are mostly higher this morning. All in all, it's been a quiet pre-market session so far and U.S. futures are pointing to a modestly higher open at the present time.
Major Foreign Markets:
- Shanghai: -1.60%
- Hong Kong: -2.41%
- Japan: -1.51%
- France: +0.57%
- Germany: +0.51%
- Italy: -0.42%
- Spain: +0.51%
- London: +0.28%
- Crude Oil Futures: +$0.89 to $85.33
- Gold: +$3.70 to $1717.70
- Dollar: higher against the yen and euro, lower vs. pound
- 10-Year Bond Yield: Currently trading at 1.680%
Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +1.72
- Dow Jones Industrial Average: +31
- NASDAQ Composite: +8.11