After Obama Win, What’s Next for Wall Street?

With the big unknown out of the way, Washington must sort out a plan to avoid the fiscal cliff.

President Barack Obama pauses as he speaks at the election night party at McCormick Place, Wednesday, Nov. 7, 2012, in Chicago. Obama defeated Republican challenger former Massachusetts Gov. Mitt Romney.
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To be sure, the market's gains under Obama came after stocks had slipped to a very low level. And it's no indication of future performance. Indeed, the first year of presidential terms have, on average, been the weakest of the four years, according to the Stock Traders Almanac.

[Read: How the Election May Influence the Investment Advice You Get.]

The economy will lend little support in the year ahead. Economists see below-average trend growth continuing, and a big breakout is seen as unlikely for the economy or the market. Average forecasts of economic growth range from 2 percent to 3 percent for 2013, and even those tepid numbers could be at risk. A failure to solve the fiscal cliff could mean an end to economic growth: Fidelity Research figures it could trim as much as 4 percent to 5 percent from GDP.

Pimco's Gross says his firm "expects a middle ground fiscal compromise from Washington." That, along with Fed stimulus, could keep the economy ticking along at a 2 percent rate. But that below-normal trend growth would not provide much of a lift for stocks. 

Gross added that status-quo politics will not solve the big problems needed to get the economy out of its rut. And without solving bigger issues of the deficit and stimulating real growth, investors will be left with low returns for a long time to come.

The end result, he said, will be a rate of return for investment portfolios that barely matches even the low rate of inflation in the sluggish economy. The election will not change this, he said in his election commentary. "Investors should recognize that asset and currency prices ultimately rest on the ability of a real economy to grow."