Stock market falls; will it rise with Romney victory prospects?

U.S. stocks fell sharply Tuesday, with the Dow taking its worst single-day hit in four months. The Dow has dropped to 13,103, the S&P500 to 1,413, and the NASDAQ is below 3,000 at 2,990.

Our FOX Index, which tracks the distance from 15,800, the “healthy” market minimum total of a Dow of 12,000, an S&P 500 of 1,300, and a NASDAQ of 2,500, has now slipped below its previous +2,000 threshold to +1,706 (chart). On September 14, the FOX Index stood at +2,443, its all-time high (the Index is 5 years old). The drop since represents a 30% decline.

What’s happening? Quoting from the MarketWatch report referenced above:

“We have a weak earnings picture with a slower macro background catching up to the market,” said Sean Lynch, global investment strategist at Wells Fargo Private Bank. “We’ve had this week confirmation of weak earnings from large, industrial-type companies. And, there is talk that Spain may not hit its deficit target this year. It puts Europe back on stage.”

In China as well, the news is not good. HSBC's China manufacturing Purchasing Managers' Index this month remains below 50, coming in at 49.1. While that’s up from September's final reading of 47.9, anything below 50 represents a contraction of manufacturing activity, and the HSBC manufacturing index has been below 50 for 12 months as of the October report--a full year of manufacturing contraction, each month below the previous month.

This bank of bad economic news includes worries about the approaching U.S. “fiscal cliff”--the triple whammy on January 1, 2013 of 1) expiration of all the Bush tax cuts; 2) across-the-board spending cuts ("sequestration") to most discretionary programs totaling $1.2 trillion over the next ten years, and 3) other fiscal hits including reversion of the Alternative Minimum Tax thresholds to 2000 tax year levels, expiration of the so-called "doc fix", expiration of the 2% Social Security payroll tax cut, expiration of federal unemployment benefits, and new taxes imposed under Obamacare.

Will Romney’s rising election prospects lessen Wall Street’s worries about the “fiscal cliff,” and will they more generally spur a stock market rise? We shall see.