Stocks Tank After Obama Win; What You Should Buy Now
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 years."
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 ( EDV ), 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 ( ZROZ ) jumped 2.27% to 113.74.
Energy and financial stocks led the SPDR S&P 500ETF ( SPY ) down 2.27% to 139.72 -- its lowest price since early August.Financial Select Sector SPDR ETF ( XLF ) 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 ( XLE ) 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.
ETFs 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. dollar."
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 management.
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 said.