Avoid crisis: Markets to Barack Obama

Traders and investors on Wednesday said the best way for US President Barack Obama to celebrate his re-election would be to avoid a budget crisis that could send the US economy reeling.

Stock futures fell about half a percent after Obama edged out Republican Mitt Romney while bond futures rose. While the result ended uncertainty about regulation and monetary policy, some remained on edge about taxes and overall economic health.

Investors have had a tendency of downplaying problems emanating from Washington, only to find themselves surprised when lawmakers cannot get together on critical issues.

The $600 billion of automatic tax increases and spending cuts that could take effect in January and send the fragile U.S. economy into a tailspin is the next such issue that could bedevil markets.

There will be an immediate shift to government gridlock and the fiscal cliff issue, and that will be a headwind for stocks, said Michael Yoshikami, chief executive officer and founder of Destination Wealth Management in Walnut Creek, California.

With Republicans retaining control of the U.S. House of Representatives, some investors feared compromise on fiscal reform would remain hard to come by, which could keep markets under pressure.

Economists fear letting all the tax hikes and spending cuts take effect at once would hammer consumer and business spending, push the U.S. economy back into recession and batter markets.

The market reacted harshly to Washington gridlock after failed legislation to backstop the banks in 2008 and, again during protracted talks to raise the U.S. debt ceiling in 2011.

The real challenge is for (Obama) to bridge the differences with Congress and work to get in the middle, said Jason Ader, a former Wall Street gaming analyst and a Romney supporter.

Markets will have a knee jerk reaction tonight and tomorrow and find support over the next few days, he said.

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