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While the election doesn't appear to have resulted in the worse possible outcome for Wall Street, what did occur was interpreted by the market negatively enough to cause a small crash today. So far Obama has won the presidency by a 7% plurality, although based on turnout estimates several million votes seem to be missing from the tally. The Democrats have picked up at least five seats in the Senate and have solidified control, but the filibuster proof majority remains elusive for them. Four seats - Georgia, Minnesota, Oregon, and Alaska - are still undecided however. Currently the Republican is ahead by 500 votes or less in Minnesota and Alaska and recounts will be taking place. All the ballots haven't yet been counted in Oregon's mail-in-only election, but it looks like the Democrat will win when they are. As of now, Georgia is heading toward a run-off election next month because neither candidate got 50% of the vote. Alaska would have to have another election as well if convicted felon Stephens wins, since he will probably be expelled from the senate by early next year at the latest. Current tallies indicate that the Democrats picked up around 20 seats in the House and will have between an 81 an 88 vote majority.
Inexplicably the market rallied while the voting was taking place, with the Dow closing up 305 points or 3.3%. This was the biggest rally since 1980 when the market was first opened on election day. The previous biggest rally was a 1.2% gain in 1984 when Reagan defeated Mondale in a massive landslide that was universally predicted. Today, after seeing the returns all the major U.S. stock indices dropped 5% to 6%. Previously this would have been a headline news, but a drop of this magnitude has become commonplace in the last two months of high volatility trading.
Volatile markets are of course not healthy markets. A 305 point Dow rally yesterday, followed by a 487 point or 5.1% drop today should not inspire confidence. The S&P and Nasdaq were down a slightly greater percentage and the Russell was down the most with a 5.7% drop. Oil dropped $5.23 a barrel after an even bigger rally on election day. When Japan opened, the Nikkei followed the U.S. markets down, ending its morning session with a drop of 5.7%. The Hang Seng in Hong Kong was having an even bigger drop, while the Shanghai Composite hit a two-year low before attempting a recovery. Like the Nikkei, Korea and Taiwan were experiencing crash level drops at mid-day while Singapore and Australia were down somewhat less than 5%. If anything, volatility in Asian markets has been even greater than in the U.S.
In the longer term, there is a lot more to consider than the 5% to 6% drop in the U.S. markets today. Since September 2007, the New York Investing meetup has pointed out how the Federal Reserve and the Treasury have attempted to prevent and cover up economic problem before the presidential election. Well, the election is now over. Some of these actions may now start to unravel. If so, we shall begin to see this in the next month or two.
NEXT: When Stimulus Ceases to Be StimulatingDaryl Montgomery
Organizer, New York Investing meetup
This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.