Reaction to the re-election of President Obama was muted across financial markets. There was an element of relief in early trading on Wednesday at the retention of the status quo in the White House, which is likely to mean a continuation of the accommodative monetary policies of the past four years but this was soon replaced with a sell-off of equities.
Risk assets such as equities, gold, silver and other industrial commodities rose modestly in early trading response as traders took the view that quantitative easing will continue to support such assets.
But the effect on UK equities is likely to be minimal, indeed stock market historian David Schwarz argues that seasonal trends are more important on this side of the pond. And the US market is more likely to be led by sentiment on the impending fiscal cliff, as JPMorgan global strategist Dan Morris says: "If just a short-term solution is found to the problem, markets should recover fairly quickly. If tough negotiations lead to a drop in equity markets that should be viewed as a buying opportunity; US equities are still fundamentally attractive but valuations are not as good as they were a year ago."
Uncertainty over the identity of the next incumbent of the White House may be over, but significant clouds remain over both US and European equities and it remains to be seen to what extent this will continue to temper the traditional fourth-quarter equity rally. Such uncertainty may also deter some bond investors, as Legal & General bond fund manager Michel Canoy said: "I remain underweight US corporates as the risks of the fiscal cliff on US growth have not been priced into US credit markets."
