3 Stocks the Market Is Overreacting On

Assuming it is, in fact, what's moving the market today -- and I think it's a pretty safe assumption -- investors are not happy about President Obama's reelection. The Dow Jones Industrial Average (INDEX: ^DJI) and the S&P 500 (INDEX: ^GSPC) are both down slightly more than 2% as of 1:30 p.m. EST. That reaction qualifies as an over-reaction in my book -- an example of the fact that markets aren't perfectly efficient. Anyone who took a dispassionate look at the data would have known that Obama's grip on the White House was pretty secure. However, when data doesn't confirm one's beliefs and mental models, it's usually easier to toss out the information.

Mind you, I'm not surprised to see the market head lower. As I wrote in this column on Monday:

[The notion that the market will go up regardless of who wins the election] sounds a bit like wishful thinking to me. As one uncertainty subsides, it will simply allow investors to focus on another one: Will the president and Congress do what is necessary to avert the so-called "fiscal cliff"?

Instead, it's the magnitude of the move I find surprising. The S&P 500 has lost more than 2% on only two other days this year, and both occurred back in June.

The micro view
Dow financials Bank of America (NYS: BAC) and JPMorgan Chase (NYS: JPM) and competitor Wells Fargo (NYS: WFC) are all taking it on the chin today. Again, the magnitude of the declines is surprising. It's likely a Romney administration would have been friendlier to large financial institutions, but how likely was a Romney administration? It's true that the accession to the Senate of Elizabeth Warren, who advocated for the Consumer Financial Protection Bureau, suggests that bank regulations will not be relaxed anytime soon. However, the banking model is not dead. While pre-crisis profits are a thing of the past, these institutions will continue to generate substantial earnings. The gloom, doom, and uncertainty make for opportunity. Click here to request Fool analyst Anand Chokkavelu's premium report on Bank of America and find out why he thinks the stock could double. The report comes with a year of updates, so claim your investing edge today.

The article 3 Stocks the Market Is Overreacting On originally appeared on Fool.com.

Alex Dumortier, CFA has no positions in the stocks mentioned above; you can follow him @longrunreturns. The Motley Fool owns shares of Bank of America, JPMorgan Chase & Co., and Wells Fargo & Company. Motley Fool newsletter services recommend Wells Fargo & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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