Election 2008

David Karp/AP
The New York Stock Exchange

Markets React to Obama’s Victory

November 05, 2008 01:04 PM
by Anne Szustek
Wall Street got off to a slow start on Wednesday amid job loss concerns; however Asian markets posted rallies on the back of greater certainty about U.S. economic policy.

Democrats’ Win Ushers in Stubborn Markets

Although the Asian markets likely fed off of the stability provided by the end of the U.S. election, Wall Street opened today to face the sobering economic climate to be inherited by the Obama administration.

Reports for October job losses exceeded initial projections. America shed 157,000 jobs last month, according to Automatic Data Processing. Economists had predicted earlier that the country would lose 100,000 jobs in October.

Shortly after opening, the Dow Jones Industrial Average was at 9,468, down 157 points, and the S&P 500 had dipped below the benchmark 1,000 to 989. The Nasdaq shed 27 points to 1,753.

Sluggish third-quarter performances by companies across several sectors also did not do much to assuage investors. Entertainment and communications conglomerate Time Warner reported small losses over the past quarter, and bond insurer Ambac announced “substantially wider” year-on-year losses, reports The Street. Boeing also reported delays in its 787 Dreamliner program because the aircraft manufacturer has to replace fasteners on its new planes.

Domestic economic concerns also weighed down on U.K. trading, with the FTSE 100 down 2 percent as of midday Wednesday. As of 11:37 a.m. GMT, Britain’s benchmark index was down 90.40 points to 4,549.10, suggesting that the exchange may be on course to end a six-day streak of market gains.

Asian markets showed some volatility at the open of their trading hours Wednesday, but on the whole they kept their gains on the back of lessened uncertainty over U.S. economic policy now that Obama has emerged as the clear winner.

Hong Kong’s Hang Seng hit its Wednesday-morning low of slightly below 15,000 just after CNN projected an Obama win. The markets quickly rebounded to have the morning session close at 15,196.87, up 5.9 percent for the day.

Japan’s Nikkei 225 average showed similar activity, “It had started the afternoon session in Tokyo at the day’s high, showing a gain of 3.7 per cent,” reported the Financial Times. “It too dipped and by mid afternoon was showing a 2.5 per cent gain at 9,342.34. The broader Topix index was 4.6 per cent higher at 952.46.”

Financial sector stocks were the big winners on both markets, with Japan’s Mitsubishi and Industrial & Commercial Bank of China, traded in Hong Kong, seeing some of the day’s largest gains.

The Nikkei average closed at a three-week high on Wednesday, posting a 4.5 percent rise for the day.

The Asian markets also greatly fed off of Tuesday’s U.S. market gains, which itself likely saw some relief from pre-election uncertainty. Another argument for Tuesday’s bullish run on Wall Street was that it was thanks to the freer credit markets, as well as interest rate cuts around the globe.

“We don’t know if it’s the end of the bear market yet, but it looks as though the bear has taken a nap,” Sam Stovall, Standard & Poor’s equity research chief investment strategist, told The New York Times on Tuesday. “So investors are thinking, let’s enjoy a bit of a relief, both from the market’s lows and from the endless pre-election rhetoric.”

Background: Economic policy work cut out for Obama

Although most financial markets show at least an initial rally nodding toward the Obama victory, the true test of Obama’s financial forte will be in the medium to long term.

Kathy Boyle, the president of New York’s Chapin Hill Advisors, told CNBC on Monday that whomever the president will be “is just going to have egg on their faces two years from now. There are just so many problems and there’s no money. … I wouldn’t want this job if you paid me $3 trillion a year.”

The key to Obama’s potential to inspire market stability is for him to take a firm stance immediately upon entering office, argues Swiss Re chief economist Kurt Karl. “The president has to take charge, along with the secretary of the Treasury, as well as working with the chairman of the Fed and the regulatory authorities, to make sure we get through” the current economic downturn, he told CNBC.

Bipartisan trust is also integral to the success of the next president’s economic policy, says Karl. Obama has already taken a step in this direction by consulting former Federal Reserve chief Paul Volcker during the course of his campaign. Volcker is a bipartisan favorite largely credited with reining in the stagflation that characterized the early 1980s economy and is associated with Reaganomics, being one of the country’s top financial arbiters during that Republican administration. Volcker was cited as a possible choice for Treasury secretary in the Obama administration.

Other people likely on the Treasury secretary short list, according to market watchers speaking on CNBC Wednesday morning, include former Goldman Sachs head and current N.J. Gov. John Corzine and Lawrence Summers, a Treasury secretary under President Bill Clinton and an embattled former president of Harvard University.

Another former Goldman Sachs executive, Robert Rubin, who is currently a director at Citigroup, is a possible tap, as are FDIC chair Sheila Bair and Tim Geithner, chief of the New York Federal Reserve.

Jack Welch, the former CEO of General Electric, said on CNBC, “I think that Tim Geithner being in the middle of this whole thing right now” would make him a great choice for Treasury Secretary.

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