Possible Reasons Behind Wednesday's Selloff

I heard a zillion reasons why the market sold off on Wednesday:

• The price of oil was up (although gold was down).
• The productivity numbers, while good on the surface, were really lousy since they were boosted by a cut in hours worked. (But the dollar strengthened nicely on the report.)
• The SEC might require investment banks to reveal capital and liquidity levels (but after what we have been through, isn't that a good thing?).
• Retail sales in Europe showed surprising weakness (but won't that move the ECB closer to cutting rates, which would help our dollar?).

More than likely, the market moved lower just "because." We are still more than 1200 Dow Jones points above the January low, so corrections are to be expected. But if we have to assign a reason, here's mine: The market moved lower because it's apparent to everyone except Sen. Clinton that Barack Obama has the Democratic nomination sewn up -- and he has the worst tax policy of the three.

Obama would likely raise the capital gains tax to 28%. Remember the Rasmussen poll I quoted the other day: 60% of respondents said that a politician that would raise one tax would raise any tax. The market does not like the idea of higher capital gains taxes.

I don't like the idea of higher taxes on gains. I think it's monumentally dumb. There may be more substantive issues and reasons to elect Obama, but as I have said before, my purview is finance and the markets. Higher capital gains taxes are not good for the stock market. They are not good for the economy, either. But as noted above, maybe the market sold off just "because."

As I said, we are 1200 points above the January intra-day low. A 50% retracement of this move would be considered normal. That would put the Dow back to around 12,300. We always have a need to assign reasons or blame, so if we have this correction, expect to hear it's because the odds favor Obama against McCain and the market doesn't like that prospect.

For me, it is far too early to get overly excited. A lot is going to happen, so let's stay tuned. I have thought the market was overdue for a consolidation of the recent gains and suspect it is at hand.

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Vincent Farrell Jr. is a principal of Scotsman Capital Management. Prior to joining Scotsman in April 2005, Farrell was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships. He is a regular guest on CNBC as well as other national print and broadcast media.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.