November 7, 2008, 7:02 am

Markets plunge following election

by: The Financial Blogger    Category: Investment, Market and Risk,Trading
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One of the big questions on everyone’s lips yesterday was how the markets would react following the results of the elections that crowned Barack Obama as the 44th President of the United States. And while the markets opened slightly down, things did not get better as the day advanced, quite the contrary. The Dow Jones index ended up losing 486 points, a little over 5% of its value and losing about the same yesterday as well. Although the market had been highly volatile in October, November had seen two calmer days.

It’s been interesting reading analysis of what actually happened and of course it is always easier to come up with explanations once it’s happened than before the move occurs. Most of the analysts agree that the past two day’s move had little if anything to do with the election except perhaps that a lot of investors had been focusing on the election instead of looking into the gloomy outlook of the world economy.

And anyway, we have to agree that the market had already anticipated the Barack Obama win. It was actually so unlikely that he would lose that you could get 14 times your money by betting on John McCain on the prior day. But generally, we agree with the view of Intelligent Speculator that over the medium run, the diminished uncertainty will be good for the markets.

One of the sectors that suffered from a major decline today was the financials and while the right wing has been talking about this being caused the effect of anticipated regulations that will be pushed through by the Democrat government, I tend to disagree. I think it’s a bit difficult to give that much meaning to a single day of trading. Will a reversal in tomorrow’s trading mean that after all they changed their minds? Of course not.

But it will be interesting to see if we get back into a down trend and how the Obama administration sets itself up as it will face important decisions such as naming a new secretary of treasury to replace Hank Paulson. Given the increased importance of the treasury in recent months, this choice will be considered very important by the markets in deciding what kind of help the financials will receive….

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