Awaiting the End of Uncertainty? Don’t Hold Your Breath

A well worn adage about Wall Street suggests that markets can adjust to almost any circumstance, as long there are no surprises. "We don't like the idea of higher taxes," investors often say, "but we can deal with it (within reason) as long as you leave things alone after that."

While this degree of flexibility may seem, to some, totally out of sync with an otherwise polarized world of entrenched partisan positions, it really is laudable for the "we'll find a way" optimism and attitude it implies.

"Elect whoever you want, just leave us alone" the battle cry goes, but the problem is, there's always something else to worry about. Just as Superman buckled at Kryptonite and vampires implode in the light, markets loathe the smell of uncertainty as much as they refuse to wait for news before reacting.

What's interesting, as SocGen forex strategist Kit Juckes points out in a note to clients this morning, is that stock and bond investors have drawn different conclusions. "Romney cuts taxes and spending and eventually replaces Bernanke with someone less dovish. This helps stocks, is bad for bonds," Juckes writes, adding that "Obama raises taxes and healthcare, bad for stocks and therefore good for bonds."

As insightful as this disparity is, it is also troubling in that it also means a lot, as in half, of investors are about to be proven wrong and therefore will need to adjust 180-degrees.

But beyond Tuesday, as much as markets will presumably have a clear vote tally, there will be several other near and medium term obstacles that could keep investors in a funk.

Not only will any changes in the balance of power in the House and/or Senate have a major impact on the tone and outcome of lame duck session negotiations to address the fiscal cliff, but would also completely alter the agenda of the first two years for the next President.

At the same time, there are 11 states voting on governors tomorrow as well, an event that can see relatively small states taking on outsized national importance as they wrangle with budgetary woes. Just think about replicating the battles that crippled Wisconsin over the past year.

Add in another election in Greece on Wednesday that could rekindle fears of a Eurozone breakup, as well as the start of China's 18th National Party Congress on Thursday, and it's conceivable that worries from beyond our borders could begin to intrude upon investors again too.

So as much as tomorrow's voting is set to mark the end of some uncertainty, if you're expecting markets to suddenly move into the HOV-lane and burst higher, you're sure to be disappointed. Politics are clearly a factor, but ultimately, it's earnings that matter most to Wall Street.