Gold prices jumped on anticipation that the winner of Tuesday’s election will take additional action to stimulate the economy. Future action in various asset classes is under glass now that the election is past.
The fiscal cliff is looming and is now at the forefront of political and economic attention as Republican resistance still commands the House and the Democrats strengthen their command of the Senate.
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There is no quick solution to the fiscal cliff. Congress has only two weeks in the last session of the year to come up with either some type of extension full-fledged agreement on a solution—the latter of which is highly unlikely.
Stocks and bonds have both had the best rallies in over a decade under President Obama. But the enthusiasm may be tempered by the fiscal cliff issue until some resolution is found.
Word is that President Obama will continue to support the Fed’s interest-rate policy. Yet his reelection endangers tax cuts on dividends and capital gains enacted in the early 2000s.
The advance on the Dow Jones Industrial Average that began after Obama was first elected is five months away from matching the mean length of bull markets occurring after World War II.
The bull market is likely to last another year as confidence in the economic recovery strengthens and investors finally return to equities after withdrawing money since 2007.
Much of the uncertainty about the economy will be resolved because the fiscal cliff will be dealt with, one way or another, by the end of the year. The event will force some type of bipartisan compromise.
Since markets hate uncertainty worse than they hate bad news, both of these events will be positive.