As President Barack Obama widened his lead over Mitt Romney in polls this month, traders at hedge funds and investment firms began shooting emails to clients with a similar theme: It’s time to start preparing for an Obama victory.
What many in the market worry about isn’t that high earners may pay more in taxes if Obama is re-elected. It’s gridlock in Washington come January, when more than $600 billion in spending cuts and tax hikes could kick in just as the country smacks into its borrowing limit again.
There is reason to expect a deal. If Obama wins, the Republican fight to make him a one-term president will be lost. With the elections over, there will be little reason or room for political posturing. House Republicans could finally decide to be more cooperative.
“They’ll be faced with determining whether we get a recession or not,” says Jeff Kleintop, chief market strategist at LPL Financial.
But investors remember the budget battle in the summer of last year, which ended with the country losing its top credit rating and panicked investors fleeing the stock market. Investors are fearful of a repeat. In a second term, Obama would likely again be pitted against a Republican-controlled House of Representatives.
Via – CNBC
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