The-day-after-the-election results are in. Some folks (partisan) seem to believe that this is due to expectations that left-wing policy-making from the Obama administration will have consequences, particularly in the way of tax hikes. However, while you cannot dismiss this idea, it seems more likely that the market has gotten back to work, after the grand diversion of the election.
The chart below shows yesterday's loss of -5.05%, was indeed, the worst day for the Dow, following the election of a new president. Reports cited the market's reaction to the ADP report, and not the election results.
Our sense is that the real reason markets are liquidating is due to the unwinding of carry trades as a result of rate cuts out of the UK and the Euro. They cause destabilization in the global currency balance and that forces markets to unravel further. ThisĀ kind of activity is not likely to subside until currencies come back into balance i.e. when Euro and Sterling (UK) rates and thus currency valuationsĀ fall to lower levels against the dollar. Furthermore you'd also have to see the Yen back above 100/dollar (USDJPY).
The Yen is an excellent negatively correlated barometer for global markets. When the Yen weakens, markets gain, and vice versa.
Table: Bespoke Investment Group
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