One Uncertainty Down, One More to Go

President Barack Obama's re-election a disaster for stocks? Really? Overnight, Asia markets were flat to up, Europe stocks rose, bond yields fell, and U.S. S&P 500 futures turned somewhat negative just after 7 a.m. ET, but that was because European Central Bank chief Mario Draghi said that the data suggest the economic slowdown has reached Germany.

Forget Fiscal Cliff, Brace for ‘Fiscal Waterslide’: Author
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The focus shifts now to the "fiscal cliff." A compromise is certainly within reach, even if what happens in the two top tax brackets is uncertain. Congress returns next week for a lame duck session, and they can make a deal on the fiscal cliff between Thanksgiving and Christmas. Republicans can claim they are not voting for a tax increase as long as they stay below the Bush thresholds. (Read More: For Investors, More Fed Easing, Cliff 'Heart Attack')

Any extension of the tax cuts would likely lead to a big rally. I still believe the odds favor an extension of the tax cuts into the end of 2013.

"Grand bargains?" Extension of the debt ceiling? Both are unlikely during the lame duck. Those are 2013 issues.

Regardless: I said yesterday that the market's greatest fear was no winner. It didn't happen. That is a positive.

The bad news: The weak economy still is there. There is not going to be a huge increase in capital expenditures because Obama has been re-elected. Nor will there be a sudden boost in hiring.

As for Wall Street, which despises Obama, there's going to have to be some kind of rapprochement.

The good news: Treasury Secretary Tim Geithner will likely be stepping down and there will be the chance to bring in someone at least more understanding of Wall Street. Jack Lew, the White House Chief of Staff, was at least a Citicorp banker. His name has been bandied about.

The bad news: Major changes to the Dodd-Frank Act are unlikely. Elizabeth Warren won the Senate seat in Massachusetts and she practically created the Consumer Financial Protection Bureau, a target of conservative critics. She is likely to be a serious gadfly on the issue of more regulation on Wall Street. Not clear if she will be on the Senate Banking Committee.


1) One obvious lesson of the election: Selling tax cuts, small government, and entrepreneurship is necessary, but not sufficient. Immigration: Obama got 71 percent of the Hispanic vote. Women: Obama won 55 percent. Minorities: Obama won 93 percent of the black vote.

2) Bailouts wrong? Maybe, but campaigning on the auto bailout was a winning strategy in Ohio and Michigan.

3) Sectors to watch:

a) Defense. Defense stocks were not so much "Romney stocks" as they were "'fiscal cliff' stocks." Sequestration would have been a disaster for defense stocks. I believe the election — with Republican in control of the House, Democrats in the Senate, and Obama in the White House — improves chances that sequestration will not happen. Indeed, with the leadership of the defense committees unchanged, a lame duck Congress could more easily complete a deal to avoid sequestration. (Read More: Status Quo as Dems Hold Senate, GOP Keeps House)

Don't get me wrong — it seems likely that even if sequestration is avoided, defense budgets will be cut. Afghanistan is winding down. I expect defense stocks to be down today.

b) Hospital stocks will be up as Obamacare is now a foregone conclusion. There have been reports that hospitals could see earnings per share grow by 10 percent to 15 percent when Obamacare comes into effect in 2014.

Medicare managed care companies like Centene will also will benefit, as coverage will expand.

Companies that specialize in Medicare Advantage like Humana and Universal American may have a tougher time because rates will be negotiated lower.

c) Coal stocks will be weaker.

d) Energy stocks? Mixed. In theory a mild negative, but because the status quo is being preserved in Congress, it's likely there will be less success in eliminating tax preferences for the energy industry, though I certainly expected attempts will be made.

e) Bank stocks likely will be weaker on prospects of more regulation. Major changes to the Dodd Frank Act seem unlikely.

f) High-end retailers might come under pressure because of increased chances of taxes on higher income brackets.

g) China ... more positive. Less chances of a trade war. (Read More: Asian Investors Breathe Sigh of Relief as Obama Wins)

—By CNBC's Bob Pisani

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