Making Money Alert: The Presidential Election Aftermath

Of course, the selling in domestic stocks hasn’t been just a phenomenon of today. In late October, the S&P 500 fell below its 50-day moving average. If things continue to fall, we will be very close to seeing the market break below the long-term, 200-day moving average — a very bearish signal for stocks going forward.

And it’s not just the S&P 500 that’s sold off hard of late. Some of the top stocks in the best sectors have fallen as well, including one of the market’s traditionally strongest stocks, Apple (AAPL). The chart below of the personal technology giant tells the tale of a company whose shares have plunged under heavy selling pressure since vaulting to its all-time high in September.

As you can see, Apple shares have broken down below the 200-day moving average, and this situation is not a good sign for the company, or the markets at large, going forward. Moreover, the stock is now officially in bear market territory, having declined some 20% off of its most recent high.

The bottom line here is that when leading companies in leading sectors get hit with a selling wave, it doesn’t augur well for companies with far less earnings prowess.

To be certain, it’s a precarious time in the markets. That means it’s essential for you to approach any investment with extreme caution. Make sure that if you have gains in the market right now that you act to protect those gains.

I have to share a few thoughts on what the next four years may bring now that the president has been reelected. For this, I want to present my friend and fellow Eagle Publishing colleague Nicholas Vardy, who recently provided what I thought was quite a brilliant analysis of what things might look like by 2016.

According to Vardy, who incidentally attended Harvard Law School at the same time as President Obama, the country faces the following uncomfortable outcomes during the next four years. Here are a few of the highlights from Vardy:

Economic growth averages a “new normal” rate of 2%; U.S. GDP in 2016 will be just $16.2 trillion, a tiny bit higher than the $15 trillion of today. The United States drops from seventh to 18th in the annual Global Competitiveness report, after falling from first in 2008 to seventh in 2012.

Our national debt hits $20 trillion by 2016, with the Debt/GDP ratio surging to 123% of GDP (the current ratio in Italy). S&P downgrades U.S. government debt in 2013 from its current single “AA+” to “AA-,” the same rating as Japan.

Vardy goes on to predict that taxes are going to rise across the board to pay for exploding government social programs and, of course, there will be a disproportionate increase in taxes on higher-income earners. As for employment, we are likely to see the headline rate unemployment remain in the 7-8% range until the president leaves office. There also likely will be an increase in “part-time” and “contract” workers, as employers take steps to skirt the costs associated with Obamacare.

As for the stock market, Vardy speculates that the S&P 500 essentially will trade around the same levels as it is trading today by the end of the president’s second term. This prediction is troubling, as it means that buy-and-hold investors could be faced with four years of essentially dead money in their stock holdings. That’s not a very appealing thought, nor is it something any of us want to experience.