Re-election of President Barack Obama has not gone down well with the US markets. The markets declined sharply after the election results on Wednesday.
There are some real concerns in the US says Richard Ross, global technical analyst, Auerbach Grayson. "I think politics is just a convenient excuse (to fall) for a market that has been overheated throughout the year being fueled by this government stimulus," he adds.
Historically, he says, November to April is the strongest six-month period of performance. "There should be a little bit of a tailwind here. With prices having come off so hard and fast from recent highs, maybe this is a good point to step into your point," he asserts.
Wall Street next week: 'Fiscal cliff' blues may lead to decline
Below is the edited transcript of his interview on CNBC-TV18.
Q: What do you make of all the events, political and the beating the markets have taken in the last two days?
A: The market expected an Obama victory. Usually, when the market gets what it wants, it doesn’t quite react this unfavourably. Quite surprisingly, they are trotting out these reasons that we knew about the fiscal cliff, the woes in Europe. This is nothing new. The markets continue to lower throughout the week. So, clearly, there are some real concerns in the US.
Q: I have been talking to economists through the course of the week, political analyst. Could it be that the markets were disappointed that the Congressional elections throw up pretty much the same gridlock situation that we have seen hamper any policymaking in the last three-four years in the US and maybe they were hoping for a smoother path to the resolution of that fiscal cliff, which now becomes tougher because the Democrats have retain the senate or the majority in the senate and the Republicans have done so in the house?
A: I think that’s a great point. I think that many were hopeful that we might get a situation which may have alleviated some of that gridlock. But on the same token, we didn’t really see too many election day surprises, whether it was a presidential election or Congressional election as it were. So, I still feel like politics, to a certain degree, is being used as a very convenient excuse to try to make up for the weakness in the market.
Let us keep in mind that the market hasn’t been on exactly the most solid footing in the US, even leading into the election. We put in a lower high in the S&P 500. We have already started to see some signs of weakness. I think politics is just a convenient excuse (to fall) for a market that has been overheated throughout the year being fueled by this government stimulus. Earning season has been somewhat lacklustre.
Q: Let me add to the list of negatives, if I may say so for the markets because there you have got the impending fiscal cliff. You know more about that than any of us do. You have got issues coming back to the fore in Europe. Everybody was waiting for that Spanish bailout request. That hasn’t come through and may not come through till the course of the end of this year. Greece is fast-running out of cash. Do you expect markets will only continue to decline between now and the year-end or do you see some relief inside?
A: Historically, this is a pretty stretch that we have come into. November to April is the strongest six-month period of performance, going back almost 50 years. Infact, almost all of the gains, on a cumulative basis, have come between November and May. So, it is historically a strong period. Typically, we get a little bit of a Santa-Claus rally. It is difficult to trade that. It is somewhat imprecise admittedly. But you did get a little bit of a good cheer. Sometimes that carries over into the market. So, historically or traditionally, this is a nice season for the market. We made it through October, which is historically a very risky, volatile period as it was this year. So, there should be a little bit of a tailwind here. With prices having come off so hard and fast from recent highs, maybe this is a good point to step into your point.