Wow, that was quick. The markets celebrated Obama’s reelection with a quick drop as investors shifted their focus to the problems in Europe and the fiscal cliff here in the U.S. All three papers headlined with the fiscal cliff in one way or another this morning. The Wall Street Journal and New York Times (NYT) addressed it explicitly, with “Focus Moves to ‘Fiscal Cliff’” and “Back to Work: Obama Greeted by Looming Fiscal Crisis,” respectively, while the Financial Times (FT) caught up on the election with “Obama wins but new battle looms.”

Yesterday’s market dip was significant, the largest of the year in both points and percentage for the Dow. It also took the market below psychologically significant breakpoints, at 13,000 for the Dow and 1,400 for the S&P 500, and put it closer to its 200-day moving average—another potentially important breakpoint. Now that we’re past the election, the market is focusing on the next set of challenges, and it doesn’t much like what it sees.

Now that the election results are in, it is time to think about what they mean for your financial future. Even though the government will remain pretty much the same for at least the next two years, taxes will be changing substantially next year, and we can make some educated guesses about how they will be changing after that. Finally, we need to consider what the pending fiscal cliff might mean to our financial health and how to prepare for its effect.

You’re likely aware that the fiscal cliff refers to the package of tax increases and spending cuts scheduled to take effect, absent Congressional action, at year-end. The chart illustrates the various components included in the fiscal cliff; each one would be significant on its own, but taken together, they could prove disastrous for the economy.

So, here we are, pretty much exactly where we were yesterday, but now it all looks different. Democrats are happy, Republicans are depressed, and the government will look the same for the next four years as it has for the past four.

So here we are, Election Day, and the uncertainty will soon be resolved. Right?

Financial markets react to uncertainty

Today’s post will be a short one, as I’m finishing up at Commonwealth’s National Conference before traveling home—and also, frankly, because there’s not a lot of news.

The papers are focusing on the final day before the election, with the candidates and campaigns dashing around trying to do the one last thing that might make a difference. Recovery from Sandy is the other big story: human-interest components, details on specific problems, and speculation about the storm’s overall and long-term effects.

[youtube=http://youtu.be/koalukAlgiM?hd=1]

As the election nears, and the race remains tight, I think it’s appropriate to consider what both candidates would mean for various issues. Taxes are certainly one of the most prominent areas of debate, so let’s take a look at both candidates’ proposals and their potential consequences.

Of course, neither candidate has been very forthcoming about what, exactly, he plans to do. We therefore have to make some guesses and inferences about what their general assertions and varied proposals really mean. Another problem is that whatever is proposed by the White House, from either side, must be passed by Congress, which looks likely to be divided again between the Democrats and the Republicans. So, any analysis of the new president’s plans may not be a good guide to what actually happens.

Another day for optimism, I guess, as several good economic reports showed up over the past couple of days.