Equities Fell Of A Cliff

Published by Filipe R. Costa on Thu, 08/11/2012 - 10:07
fiscal cliff

Daily Market Commentary for November 8: While the first reaction to Obama’s victory was positive, equities were trashed during yesterday’s session as the fiscal cliff is now the concern of the moment. If negotiations are to be similar to what happened with the debt ceiling, then we may assist to a very tough end of year.

No one would say the Dow almost hit 13,300 overnight on election day as just a few hours later the it entered in sell off mode and lost an astonishing 313 points to close at 12,932. This is the first Dow close below 13,000 points since August and there is a feeling in Wall Street that this may be just the start of a more profound downtrend as time is running out for the U.S. President to get a deal to avoid the fiscal cliff.

Obama’s victory is certainly the best for who wants QE3 to stay alive as Romney has been against it but at the same time with Senate being Democrat and the House Republican, it will be tough to get any deal regarding the appropriate cuts to avoid the fiscal cliff. As it become obvious the fiscal cliff will be a major issue, investors start to avoid equities and may continue to do so until they are sure something can be done in terms of fiscal stability.

Adding to the black scenario, the European Commission downgraded its view on the EU economy for the current year. The institution now expects the EU economy to grow just 0.1% instead of 1.0%. This has helped on the equity sell off.

With the current state of political and economic issues, I suspect it may not be the right time to buy equities. I will keep my short positions on Gold and on EUR/AUD.