The macro view: President Obama won the election and the popular vote, but Mr. Market sent a message that the race it cares about -- the one to avert the fiscal cliff -- is running out of road. The Dow Jones Industrial Average (^DJI 1.12%) and the broader S&P 500 (^GSPC 1.07%) both fell 2.4%; for the latter index, it was only the third time this year it suffered a greater than 2% decline.
On Monday, I highlighted in this column a Barron's report that savvy investors had made large purchases of November calls on the VIX (^VIX -12.27%) at strike prices of $20 and $22. I concluded: "[T]omorrow's election will not eliminate policy uncertainty -- the fiscal cliff associated with automatic tax increases and spending cuts is looming large. For professional investors, betting on an increase in volatility looks like a decent bet." Those investors were amply rewarded on their speculation today, as the $20 calls doubled in value, while the $22 calls gained 90%. The underlying VIX rose 8.5% to 19.08, its highest close since July 25.
The micro view: I remarked on this earlier today: The Election Day storm that tore through banking-sector shares today is now offering investors an attractive entry point on some of country's most prominent financial institutions, including Bank of America (BAC 1.42%), Wells Fargo (NYSE: WFC) and JPMorgan Chase (JPM 1.55%). B of A shares were down more than 7% on the day! Make no mistake about it: While bubble-era leverage and profitability are a part of history, these franchises are now much safer and remain solidly profitable. In terms of risk (and potential upside), the three rank as follows: B of A (riskiest), JPMorgan Chase, and Wells Fargo (least risky). If you want a comprehensive assessment of these businesses and the prospects for the shares, as well as a full year of coverage:
