LAURICELLA And
JONATHAN
CHENG
Wednesday turned out to be a bad day for investors betting on a Mitt Romney
win.
With Mr. Romney and President Barack Obama virtually neck and neck going into
Tuesday's election, traders said that many investors had bets aimed at capturing
any rise in stocks should Mr. Romney pull out a win. Their wager: Many largely
expected Mr. Obama to be victorious, therefore any selloff would be minimal,
with the reward seen as bigger than the risk.
But things didn't go as planned. Even before U.S. trading started, unexpected
bad economic news out of Europe sent financial markets into "risk-off" mode. The
euro, and subsequently prices of stocks and other investments such as
commodities perceived as riskier, fell following the announcement that the
European Union had cut euro-zone growth forecasts.
When U.S. trading got under way, traders found themselves in a mad dash to
sell at the opening bell. The result was a postelection drop in U.S. stock
prices. And those who had bet on gains were caught flat-footed.
The Dow Jones Industrial Average dropped 312.95 points, or 2.4%, to 12932.73.
That handed the blue-chip average its biggest one-day fall since Nov. 9, 2011,
and sent the Dow to its lowest level since August.
Wednesday's decline marked the fifth-largest selloff after Election Day. The
largest was four years ago, when, in the midst of the financial crisis, the Dow
fell 5.1% following President Obama's election to a first term.
Jerry Harris, chief investment officer at Sterne Agee in Birmingham, Ala.,
which manages $17 billion in assets, was among those who had placed bets on Mr.
Romney winning the election. Mr. Harris had put money into some health-care
stocks on Monday and Tuesday, predicting they would get a bump. While some
health-care stocks rose, others sold off.
Stocks skidded to their biggest one-day loss in a year
amid post-election concerns and worries about the coming fiscal cliff battle in
Congress. Paul Vigna has details on The News Hub. (Photo: AP)
Last August, President Obama and Congress put the U.S.
economy on course to go over a "fiscal cliff." With the 2012 presidential
election decided, WSJ's David Wessel tells you everything you need to know about
the "cliff" but were afraid to ask.
Uncertainty over the fiscal cliff added to trading
volatility following election day. Tom Lauricella reports on Markets Hub. Photo:
Reuters.
President Obama will face a divided Congress, making the
threat of that the U.S. will go over the fiscal cliff likely. University of
Chicago economics professor Randall Kroszner discusses on Markets Hub. Plus, the
re-election of Obama means he gets to nominate the next Federal Reserve Chief.
Who might it be? Photo: AFP/GettyImages.
Mr. Harris now regrets his move, though he said the damage to his portfolio
was minimal. "It wasn't a big risk, but I did the two [trades] with the
deliberate intention of thinking we'd get a boost out of stocks if Romney won,"
he said.
Lawrence McDonald, former Lehman trader and author of "A
Colossal Failure of Common Sense," joins Markets Hub to discuss how Wall Street
is likely to view a second Obama term. Photo: AFP/GettyImages.
On Wednesday, Mr. Harris said he told himself: "You've been caught leaning.
You know better than to have strong opinions before an event like that."
The selloff surprised Thomas Lee, stock-market strategist at J.P. Morgan, who
before Tuesday had called for a postelection rally through year-end no matter
which candidate won. "There were probably more people than we realized hoping
for a Romney win," he said.
Among the more vocal predictions on Wall Street that Mr. Romney would win
came from veteran investment newsletter writer Dennis Gartman. On Monday, Mr.
Gartman wrote that Mr. Romney would win, "perhaps quite handily." On Wednesday,
the first words of his newsletter were, "We were wrong."
"I've been very good at this for 30 years and I missed this one," said Mr.
Gartman, who said he didn't have any investments explicitly tied to the election
outcome. "It's a shame that I missed this one, but it's probably not going to be
my last mistake."
Associated Press
A trader on the floor of the New York Stock Exchange
looks at the front page of a newspaper on Wednesday morning, the day after
President Barack Obama was re-elected.
Especially hard hit Wednesday were financial and energy stocks, which
experienced a double whammy. A win by Mr. Romney likely would have provided an
easier regulatory climate for both. In addition, both are sectors that often see
aggressive selling on "risk-off" days.
Exxon Mobil XOM -1.26%fell 3.1% and
Chevron CVX -1.53%lost 2.6%. A number of coal stocks, seen
as big winners under a Romney presidency, saw declines of 10% or more. Among
financial stocks,
Bank of America
BAC +1.73%tumbled 7.1% and
J.P. Morgan Chase
JPM -0.20%gave up 5.6%.
Kent Engelke, chief economic strategist at brokerage firm Capitol Securities
in Richmond, Va., on Monday reiterated what even he described as a "brazen" call
that Mr. Romney would win by seven percentage points. That followed a late
summer call that no matter who won the presidency, the "fiscal cliff"—tax
increases and spending cuts that take effect on Jan. 1—would send stocks
lower.
On Tuesday, before the polls closed, Mr. Engelke, wrote a short client update
anticipating a triumph by Mr. Romney. Instead, he got up Wednesday morning and
penned an acknowledgment that he was wrong. "I've never been this wrong before,"
he said Wednesday afternoon.The response from clients was supportive, he said.
Then, on his way back from a meeting, he stopped to help some folks whose car
had run out of gas. It turned out all three had worked for the Obama campaign.
"All three shook my hand," he said. "Maybe this is an example of bipartisanship
we need."
LPL Financial Chief Market Strategist Jeff Kleintop on
what the election results mean for the economy and the markets, especially with
the impending fiscal cliff on the horizon. Photo: Reuters.
Write to Jonathan Cheng at
jonathan.cheng@wsj.com
![[image]](http://si.wsj.net/public/resources/images/MI-BS329_PAN_C1_NS_20121107182709.jpg)
