Maybe the title is a bit of an exaggeration, but new presidencies always bring jitters to Wall Street regardless if the President is a Republican, Democrat, Whig, Federalist, or none of the above. Simply put, uncertainty creates profit taking, and profit-taking creates selling pressures, and as a result the markets usually take some time to adjust to the policies and agendas of incoming Presidents. President-Elect Obama is no exception to this either. His approach with Wall Street and his taxation policies for higher wage earners will likely have some effect on the mood of the overall market.
Historically, the 1st and 2nd year of an administration is usually the hardest on Wall Street, as those years have historically performed the worst. Years three and four typically are the best (except for this year of course!). So it will take some time for the markets to adjust to Obama, especially if his economic policies introduce major changes to Wall Street and the economy in general. But overtime, a President and Congress has very few tools in the arsenal to directly help the economy out (just look at what $2.2 Trillion in spending did to fix the financial crisis – absolutely nothing!).
Now that I have given my salute to the fact that we had a new president elected last night, lets get on with what really matters – Stocks! The markets’ sell-off came on the heels of entering overbought territory, while the bears reloaded their short positions in an attempt to drive this market back down to its lows from October. To be honest, I believe that in order for the bulls to counter the selling pressures, there will need to be an inordinate amount of buying taking place. Thursday and Friday should undoubtedly be interesting for the markets and where we go from here.
Here’s the Nasdaq and S&P charts…