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Stocks Slump Post – Election As Fiscal Cliff Looms
Malaysia Perspective | 19 November 2012

By: Kevin O’Shaughnessy

Major indexes looked beyond the political certainty following the US elections and turned in one of their worst performances of 2012 as worries about Europe and the looming fiscal cliff weighed on stocks.

With President Obama’s bid for re-election successful, questions now abound as to whether politicians in Washington will be able to agree to a compromise ahead of the Jan. 1 deadline when tax increases and spending cuts are set to begin. The markets are also uncertain how new members of Congress will treat certain business sectors in the United States. The uncertainty led to a rise in Treasury prices.

Overseas, European Central Bank president Mario Draghi raised concerns Wednesday about Eurozone debt contagion beginning to spread to Germany. Germany’s council of economic advisors also warned of a slowdown in the country and a rise in unemployment, and the latest data show that German industrial production had a worse-than-expected decline in September.

The Dow and the S&P 500 lost 2.4%, and the Nasdaq fell by 2.5%, the following day after the elections.

U.S. Market Movement
Stocks were in the red for the second day in a row as investors continued to focus on looming fiscal cliff issues despite positive jobless claims data and news from Greece.

Initial unemployment claims for last week fell by 8,000 to a seasonally adjusted tally of 355,000. The reading was 10,000 claims lower than expected. The four-week moving claims average rose by more than 3,000 to 370,500, while the number of continuing claims declined by 135,000 to their lowest reading in more than four years.

Overseas, Greece’s parliament approved a new round of austerity measures required to receive the next tranche of financial assistance from the troika of lenders to the country. However, earlier today European Central Bank president Mario Draghi warned of further economic risks for the Eurozone.

The Dow lost 0.9%, and the S&P 500 lost 1.2%. The Nasdaq fell by 1.4%.

Kevin O’Shaughnessy is an ETF analyst with Morningstar.

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