Obama wins re-election.

7th November 2012

Ian Copelin, Investment Director, my wealth, comments “After the most costly presidential contest in history (with some commentators estimating over $2.5bn), Barack Obama overcame the drag of high unemployment and economic weakness and was today re-elected.

As I wait for the US markets to open, I remember how the market celebrated Obama’s victory over the Republican John McCain on 5 November 2008 with a 5.05% fall – the biggest fall on record for the Dow Jones on the day after an election.

Although polls suggested that the race remained exceptionally close, with the candidates fighting for advantage in crucial battleground states, in reality the markets expected an Obama victory as his Republican rival, Mitt Romney, had the deck stacked against him with the electoral map due to the rise in the nation’s minority population, especially in some of the key battle states.  According to exit polls, the electorate was 72% white (ABC News suggest Obama actually lost this group with only 40% of the vote compared to Romney’s 58%) and 13% African-American (of which 93% voted for Obama).  Within the Hispanic voters (which comprised 10% of the electorate), 71% voted for Obama.  These minority groups turned against Romney following his comments that he favoured “self-deportation” of illegal immigrants and claiming he would revamp immigration laws.

Although US markets could weaken slightly today, I am not expecting a similarly large fall today – since Obama was elected US equities have been one of the best in the developed world.

In fact, Obama’s re-election should be viewed as a short-term positive as it removes one uncertainty (and as I have said before equity markets hate uncertainty) and allows Obama to focus on resolving the fiscal cliff (from January 2013 US government budget spending cuts begin and ‘temporary’ tax cuts expire unless Congress can reach a budget compromise) – although there is the obvious risk that the market will now simply focus on the fiscal cliff (and its uncertainty) and Europe, where the Greek government has a Parliamentary vote later today on new austerity measures, which if passed will secure the next round of bailout funds and stay in the euro.

With the S&P 500 trading at 14.4 times reported earnings (and according to Bloomberg – a 12% discount to its historic level), US equities look good value and should benefit as policy uncertainty recedes.”