Do not be surprised by a stock sell-off.

As the likelihood of Obama being elected increases, do not be surprised by a sell-off in the stock market. Those with positive long positions in the market. who might want to sell in the the next 4-8 years, will be selling stocks. There are two reasons, the first is to offset loses. The second is to avoid an increase in the capital gain taxes. It would make sense for them to sell now and buy back after 30 days (wash sale rule). The savings of 5 or 10% in taxes might offset any possible rise the value of the stocks, especially in the current economic climate.

Should Obama be elected, there might be a further sell-off. Those waiting to move losses to the next year might wait to 2009, hoping the the capital gain tax increases will not be made retroactive.