* After election, avoiding fiscal cliff seen as top priority
* Romney win could pose challenge to Fed's easy-money policy
* Stocks, bonds have rebounded during Obama administration
By Rodrigo Campos and Steven C. Johnson
NEW YORK, Nov 6 Traders and investors were
cautiously preparing themselves for a second term for U.S.
President Barack Obama, with many hoping his first order of
business would be to avoid a looming budget crisis.
While three critical battleground states were still too
close to call, projected victories for Obama in Pennsylvania,
New Hampshire and Wisconsin had some betting he would likely
edge out Republican Mitt Romney.
U.S. equity futures were down more than 1 percent while
prices on U.S. Treasury securities rose, a sign, some said, that
Obama's path to victory was easier to discern than Romney's.
Markets came into the night expecting an Obama victory,
which some said would hurt stocks, partly because the president
has said he wants to raise taxes on higher-income households.
"We are already down 1 percent on the S&P futures. The odds
were considered high that Obama was going to get reelected and
was already largely priced in," said Bob Gelfond, chief
executive of MQS Asset Management in New York.
While Wall Street was a heavy contributor to Romney, the
prospect of an Obama win at least removes some of the
uncertainty that had lingered over markets of late.
"Net-net, I think the market will say, 'Well, we never were
that scared about the fiscal cliff anyway, and isn't it going to
be great to have Bernanke at the Fed for the foreseeable
future,'" said Michael Jones, chief investment officer at
Riverfront Investment Group, with $3 billion in assets under
Certainly, no-one on either side wants a repeat of the
protracted fight that followed the 2000 race between Al Gore and
George W. Bush.
Sheila Bair, former Federal Deposit Insurance Corporation
chairwoman, said certainty was also crucial for sorting out the
rules of the game in the country's financial system.
Obama backed the sweeping financial reforms and tougher bank
regulation contained in the Dodd-Frank act, while Romney has
talked about repealing it.
"It's important to just get the rules done and get the
standards in place," Bair said. "We have a resilient system. I
think banks can deal with whatever the rules are, but we need to
get the rules finalized."
Whatever the outcome, markets will turn their attention next
to the coming "fiscal cliff," some $600 billion of automatic
spending cuts and tax increases due in January.
Such dramatic moves could hammer spending by consumers and
businesses, push the U.S. economy back into recession and send
markets reeling, analysts say. The market has reacted harshly in
the past to Washington gridlock, selling off after failed
legislation to backstop the banks in 2008 and during protracted
negotiations to raise the U.S. debt ceiling in 2011.
Jason Ader, a former Wall Street gaming analyst and a Romney
supporter, said an Obama win and a Republican-controlled House
of Representatives meant this was a vote for the "status quo."
If Obama holds on, "the real challenge is for him to bridge
the differences with Congress and work to get in the middle."
FEDERAL RESERVE IN THE BALANCE
Whoever wins will also have some sway over monetary policy,
even though the Federal Reserve is theoretically independent
from the government. A Romney victory would put the status of
Federal Reserve Chairman Ben Bernanke in doubt.
Romney has said he would replace Bernanke, whose dovish
monetary policy has been a helped propel the gains in both U.S.
bond and stock prices in recent years.
A Romney victory may increase interest-rate volatility, said
Tom Sowanick, co-president and chief investment officer at
OmniVest Group LLC in Princeton, New Jersey. On the other hand,
if Obama gets four more years in the White House the current
policy of quantitative easing may accelerate, Sowanick said.
U.S. Treasury bonds were rallying as stock futures declined.
The benchmark 10-year Treasury bond rose 21/32 of a point to
drop its yield to 1.68 percent.
Despite a downgrade of the U.S. credit rating from the
Standard & Poor's agency in August 2011, yields on the benchmark
10-year Treasury note hit historic lows last July.
Cumulative returns for all maturities on all U.S. Treasuries are
at 14 percent since the president's inauguration, according to
data from Barclays.
Investors might want to watch gold prices, which "should
reflect new policies more decisively than other assets," said
Matthew Rubin, head of investment strategy at Neuberger Berman.
An Obama win would likely lift gold amid fears that more
easy Fed policy could spur inflation, he said, while gold prices
would probably fall sharply if Romney were to prevail. Gold
jumped nearly 2 percent to more than $1,700 an ounce on
Tuesday as traders bet Obama would win a second term.
Unlike in 2000, Ohio instead of Florida is expected to be
the proving ground for taking the White House. At issue is
whether the Obama administration's bailout of the auto industry
will carry the day or whether Romney will maximize turnout in
the Ohio suburbs.
The benchmark S&P 500 has rallied 67 percent since Obama
took office - one of the most impressive runs ever for stocks
under a single president.