Market Insider: Wednesday Look Ahead
Illinois Sen. Barack Obama's historic victory can't help but be a positive for markets, even if briefly.
American voters cast their ballots for change, and as they voted in the presidential election, they made it clear they were unhappy with the economy, upset about their personal finances and looking for a government that will handle the financial crises differently. They also elected an African American to the highest office for the first time, an event that should energize some of the U.S. population, which historically has thrived on and gains confidence from the belief that all Americans can succeed.
U.S. Presidential Election
- Election Won, Economic Policy Now Obama's Focus
- Night of Drama Punctuates Senate Races
- Can He Jump-Start Confidence?
- The New Investment World: Together and Separate
- Five Economic Challenges Ahead For Obama
But investors will soon focus back on the economy and what the President-elect will do to tackle its many problems. The markets may also gain temporary relief from the fact that a long, contentious campaign is over.
Wall Street traditionally fears Democratic policies and in the case of Obama, it fears his tax proposals. But plenty of pundits have been saying that his tax plans may be put on hold because of the struggling economy.
"Obama's got to come out of the box very strongly," said Greg Valliere, chief political strategist at Stanford Financial Group. He said Obama needs to get an economic summit together immediately and set the groundwork for the Nov. 15 meeting with world leaders on the financial crises.
Valliere said he expects Obama to move quickly on identifying a Treasury secretary. He said New York Fed's Tim Geithner would be a top candidate, followed by former Clinton Administration Treasury Secretary Larry Summers.
Wednesday Look Ahead
Valliere said he expects the market to very shortly turn its focus to Friday's jobs report, expected to show a worsening employment picture. Data expected Wednesday includes the ADP employment report, released at 8:15 a.m., and ISM nonmanufacturing data, reported at 10 a.m.
There are also some major earnings reports Wednesday, including Time Warner, Duke Energy, Devon Energy, Becton Dickinson, Sara Lee, Molson Coors, Marsh McLennan and Foster Wheeler, expected early in the day. Cisco reports after the bell.
A Vote for Stocks
Stocks on Tuesday soared more 3 percent, the first election day gain of more than one percent since President Ronald Reagan was elected for a second term in 1984.
The Dow was up 305, or 3.28 percent at 9625, in a day of wild trading in the dollar and commodities. Oil rose $6.62 per barrel, or 10.4 percent to $70.53, as the dollar weakened and traders bet up crude on reports the Saudis were cutting production. The dollar fell 2.76 percent against the euro, and gained 0.72 percent against the yen.
"It's (the election) over. The uncertainty is done, and I think that's important," said Dennis Gartman of the Gartman Letter. Gartman said he plans to sell bonds right off the open Wednesday. He said he is fairly bullish stocks but would be concerned with too big a Democratic victory in the Senate.
He also said he again favors hard commodities and infrastructure plays and says the global economy trade is back for now. "In the present environment all correlations have gone to one. If we (the U.S.) rally, they'll rally," he said of emerging markets.
Infrastructure tops the list of sectors that traders are eyeing as election plays. Congress is expected to tackle a new stimulus package before the end of the year, and infrastructure investment is one area under discussion.
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More than one trader said Tuesday that the stock market was in an "Obama" rally but Dan Clifton, director of policy research at Strategas, points out that some stocks that you might think would react to an Obama presidency have not yet made their move. The hyper volatility and sell off in October could indeed be a reason for that.
Clifton suggests looking at the following Obama plays:
- Asset managers - they could be impacted negatively because of proposals to change the fee structure of 401ks.
- Pharmaceuticals - they've been outperforming since April but they could be negatively impacted by price control
- Heath care information technology and generics would benefit
- Managed care may overreact on the downside but there could be opportunities
- Alternative energy - would benefit from a requirement for utilities to use an increased amount of renewable energy sources
- Utilities - stocks moved higher Tuesday but could be hurt by new rules on renewable energy sources and possible dividend tax increase
- Oil - could be hurt by new taxes
- Coal - should be moving lower
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