Investors wait to see what Obama can do

Investors wait to see what Obama can do

Obama rally: Yes we can. Well, roughly speaking. The Barack Obama rallying cry, along with an apparently endless stream of crisis-easing measures from governments and central banks, created a pre-election rally. It was especially potent in stock markets, where mood often trumps reality. The US Standard and Poor’s 500 index rose 18% between 27 October and election day.

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The gloom in the economically more important credit markets has also lightened a little. Spreads on investment-grade credits and inter-bank loans have narrowed, but both remain high by pre-crisis standards. As for loans to companies and consumers, the credit slogan is still “no we can’t".

The corporate bond market remains all but closed and despite government recapitalizations, banks still don’t have the capital or the confidence to lend freely.

It may be better to pass over the continuing distress in the shadow banking sector. Dwelling on that—private equity firms such as Carlyle Group forecasting years of low returns, hedge funds offering big fee cuts to disgruntled clients—would poop the party unnecessarily.

After all, such businesses can hardly be expected to thrive when credit is anything less than abundant.

But there’s more than enough bad news in the real economy to give investors pause, whoever is president of the US and however generous his fiscal policies will eventually be.

Confidence and purchasing intentions are at rock bottom, car sales are plummeting and unemployment is rising in most rich countries.

On Wednesday morning, steel giant ArcelorMittal released some depressing numbers—revenues 10% short of expectations and temporary cuts of 30% of production, up from 15% a few weeks ago. The company is well placed to lead the industry through tough times, but times really do look tough.

The ArcelorMittal news—or perhaps just the substitution of a real president-elect Obama for the hope of transformational change—was too much for European stock market investors.

By mid-morning on 5 November, the Euronext 100 stock index was down 3%.

Investors are waiting to see what the next occupant of the White House really can do.