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Post-Election Markets Remain Volatile

6 November 2008 - Features - Editor

Instead of the anticipated post-election euphoria, U.S. stock markets gave way to post-election anxiety with major indexes plunging on Wednesday following Barack Obama’s history-making victory. While investors can lay to rest the uncertainty surrounding who would next be in the driving seat of the world’s superpower, the U.S. and the rest of the world are still facing enormous financial challenges for which there is no quick fix. The Dow Jones industrial average lost as much as 513 points during the day, rallying slightly later to close at a loss of 486 points, or 5 percent. The Standard & Poor’s 500 index dropped 5.3 percent and the Nasdaq composite index declined by 5.5 percent.

While analysts examine history in an attempt to predict future trends in the stock market, it is becoming abundantly clear that the current global financial crisis continues to set precedents, making the future is unpredictable. Wednesdays drop will go down in stock market history as the largest to follow any presidential election, while election day saw the largest ever gain, underscoring the fact that the market is very volatile and is not behaving in a predictable manner.

Just as many analysts were reluctant to give the U.S. election the credit for Tuesday’s rally, they don’t believe that the election outcome has got much to do with Wednesday’s fall. The election did not make any of the problems disappear and the rise and fall of the markets is seen as a continuation of the volatility of recent months.

News earlier this week that the U.S. economy’s large service sector has fallen into recession territory reminded investors that the country’s economy is in for a prolonged downturn. The Labor Department will be releasing its October employment figures on Friday and economists are anticipating that the report will reveal job losses of around 200,000. A report compiled by ADP Employer Services noted that companies laid off in the region of 157,000 employees in October, being the highest figure since November 2002. Many of these job losses can be attributed to the credit market crunch which prevented companies from getting financing.

Investors will also be anxious to see how the Obama administration handles the can of worms it has inherited. By the time Barack Obama is sworn in as the President of the United States on 20 January 2009, the budget deficit is likely to be as large as $1 trillion, allowing him little leeway to respond to the downturn in the economy. The market is also likely to be influenced by who is elected as the next Treasury secretary as well as other Cabinet positions. While much speculation abounds in this regard, analysts agree that Obama will need to give priority to the implementation of the $700 billion Congress-sanctioned rescue package. How this is undertaken will be a matter of intense interest to everyone involved.

 


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