Barack Obama remains president, but cash reigned supreme on
Wall Street the day after the election. The stock market fell the
most in nearly five months Wednesday as investors voted for bonds
while shunning energy and cyclical sectors dependent on economic
growth to thrive.
"Investors are disappointed in the election outcome because
for higher-income households, the president has proposed higher
taxes on income, capital gains and dividends," said David Joy,
chief market strategist at Boston-based Ameriprise Financial,
which has $678 billion in assets under management. "We are left
with the same configuration of government that brought us
divisiveness, class warfare and gridlock during the last two
Safe-haven buying drove yields on benchmark 10-year bonds down
0.11 percentage point to 1.63% as the dollar jumped to a
two-month high. Long-dated bonds, which are most sensitive to
interest-rate changes, soared as bond prices and yields move in
opposite directions.Vanguard Extended Duration Treasury Index ETF
), tracking bonds with 20 to 30 years to maturity, soared 2.44%
to 125.50. Pimco 25+ Year Zero Coupon U.S.Treasury Index ETF (
) jumped 2.27% to 113.74.
Energy and financial stocks led the SPDR S&P 500ETF (
) down 2.27% to 139.72 -- its lowest price since early
August.Financial Select Sector SPDR ETF (
) plunged 3.34% to 15.61. It's been holding up better than other
sectors since the correction started in mid-September. It finally
broke below its short-term, 50-day moving average for the first
time in four months, which is bearish.
Energy Select Sector SPDR ETF (
) burned off 2.61% to 70.85. It had already been lagging the
market the past month and a half and had been consolidating below
its 50-day line.
tracking coal, crude oil, banks, aerospace, metals, mining and
semiconductors all fell 3% or more. "The masses are moving money
out of all assets that could suffer from a continuance of a
convoluted economic strategy," said Tony Fiorillo, president of
Asset Management Strategies in Fishers, Ind., with $50 million in
assets under management.
Investors are likely selling to book capital gains because
taxes on them could rise next year, said David James, manager of
James Advantage Funds in Denver.
Where To Invest Now
ETFs that rose included those tracking gold, gold miners,
municipal bonds, Treasury-inflation-protected securities, or
TIPS, and volatility. Asset managers recommend buying gold and
other assets that can't be devalued by creating more of it.
"Gold supplies are rising at a rate around 1.5% a year, far
less than the increase in government debt and global currency
reserves," said John Hummel, chief investment officer at Wilton,
Conn.-based AIS Group with $400 million in assets under
management. "The election is largely symbolic and will not shore
up the long-term trend of declining confidence in the U.S.
With Federal Reserve Chairman Ben Bernanke to also remain in
office, long-term interest rates will likely stay low for the
foreseeable future. Low yields on money markets, bonds, or
traditional cash savings diminish the opportunity cost of owning
gold as inflation, currently running at nearly 2%, erodes the
returns on cash.
Besides gold, investors should buy megacap stocks, consumer
staples, consumer discretionary, telecom, homebuilders,
high-grade corporate bonds, junk bonds, while avoiding
commodities and their producers, said Paul Schatz, president of
Heritage Capital in Woodbridge, Conn., with $102 million under
Joy of Ameriprise believes the sell-off will be "short-lived"
and will bring a bargain-buying opportunity in the battered
cyclical sectors and high-yield bonds. "Assuming the fiscal cliff
is averted, I think there is a chance the economy improves," Joy