Obama wins 2nd term and must immediately address ‘the fiscal cliff’
As has been reported widely Barak Obama has won a 2nd term in office as President after a sweeping and comprehensive victory against the Republican challenger Mitt Romney. In terms of governance, the Republicans still control the ‘lower house’ Congress, whilst Democrats have expanded their majority in the ‘upper house’ Senate. This will make the passing of legsilation difficult as the Republicans have effective veto in the Congress. Pressingly, the US Government needs to be able to agree and pass a budget before automatic spending cuts and tax hikes take effect in January. Hardline Republicans have repeatedly blocked the passing of a budget and unless compromise is found soon, their will be budget cuts and tax hikes that will have a dragging effect on the US economy, quite possibly throwing it back into recession.
We see potential short-term downside risks to the share market in the event this occurs, although whether it will or not is uncertain and any falls in the market may represent good buying opportunities. Should Republicans and Democrats be able to reach out to each other and find compromise, then the increased certainty will push share markets higher.
Nonetheless, for the next few months caution in the share market is advised.
Fairfax’s Peter Harcher on the impending fiscal cliff: