I: results of US presidential election and win for Barack Obama

Each party and newspaper had used different polls and each was convinced their candidate was leading going into Tuesday with big margins. Given this, the market had struggled to discount the winning of any candidate.

So where do we stand after the result?

Ben Bernanke will likely stay as Fed chairman until 2014 and could stay beyond that. Bernanke would not have had a job under Romney. We know Bernanke’s policy and can expect more of the same. Monetary stimulus will not be let up until the economy and jobs market are well into recovery.

The fiscal cliff will likely be dealt with in the first few months of next year. We have written about this before and the tax increases and spending cuts are likely to be rolled into debt ceiling discussions and form the framework for a large multi-year budgetary plan. The Presidential result actually has a smaller impact than the composition of Congress for this. It looks like the Democrats will slightly increase their majority in the Senate and the Republicans will hold the House so a bipartisan agreement will be needed. The lack of a large shift in power in Washington is probably a good thing to get a deal done. But this is going to be the huge challenge of 2013.

Taxes will likely be rising, including dividend taxes and capital gains. The wealthy will be the focus, but the changes aren’t likely to be to the scale that Democrats would like, given the need for both parties to come to a budget agreement. Both Democrats and Republicans in Congress are still going to have to give up some ground on their stances on taxes and spending.

Energy policy is still unclear. This is unlikely to be a negative but certainly is not the positive that a Romney win would have brought. I still think an energy policy that drives investment will emerge in the US but it will take longer under Obama.

Healthcare spending will be under some pressure but there will be no repeal of Obamacare. This clears up some uncertainty and is probably a good result for companies in this sector. Defence spending will likely be under a bit more pressure (but less than sequestration would suggest).

Conclusion

The result has cleared up some uncertainty for markets which is always a positive, but the large budget deal that needs to be put in place is of more importance. This is what will dictate the trajectory of the economy and markets beyond 2013. The good news is that Obama will want a deal done quickly too. The risk is that if it drags on he loses all ability to achieve anything in this four-year presidential term.