Stocks fell quickly and deeply today, as investors digested what President Obama’s reelection would mean for portfolios and Wall Street. Grim economic figures about European growth also weighed on trading sentiment.
Uncertainty about the outcome of fiscal and monetary policy debates quickly consumed attention, as voters returned Republicans to control of the House and ensured a divided government.
“The re-election of President Obama removes one uncertainty that has been weighing on the markets over the last few months. But they are none the wiser about if, how and when Congress will deal with the colossal tightening in fiscal policy scheduled to occur early next year,” according to Action Economics. “And with Congress still split, President Obama will struggle to garner bipartisan support for a more comprehensive agreement that addresses the longer term issue of how to put the nation’s finances back on a sustainable path.”
The Dow Jones industrial average dropped below the 13,000 mark for the first time since August. The blue chip index in early afternoon fell 2.1%, 273.65 points, to 12,971.32. That’s approaching a three hundred-point drop, the first such decline in nearly a year.
The Nasdaq composite lost 2.2% to 2,946.72. And the S&P 500 declined 2% to 1,400.36.
Abroad, Asian markets were mostly flat, while in Europe, the FTSE 100 followed American markets into the red. That index dropped 1.6%. This declined also came from comments by European Central Bank chief Mario Draghi that Germany, the eurozone’s strongest economy, is starting to be weakened by the debt crisis. Meanwhile, europe’s official economists cut growth forecasts for France and Germany and predicted even more dire situations in austerity-riddled economies than before: There, rising unemployment and government spending cuts will reduce consumer purchasing and economic activity.
Wall Street seems this morning to hold mixed feelings on the election’s outcome. The worst-case scenario, a recount or an unknown victor, was avoided. Investors wanted the election to erase some uncertainty, not add to anxiety about the fiscal and other issues like proposed hikes to dividend taxes. Obama’s victory in seven of the 10 key swing states provides that. Moreover, Obama’s victory is seen as guaranteeing the liquidating that has boosted equities markets during the president’s first term. Romney, publicly critical of the Federal Reserve’s policies, had said he would replace Chairman Ben Bernanke. Moreover, the early losses were likely from traders who need to sell and close bets of a Romney upset.
Yet, Washington, D.C.’s landscape remains unchanged. Democrats control the White House and the Senate, Republicans run the House. Immediate attention will shift toward solving the fiscal cliff. “The history of the relationship between Obama and the Congressional leadership is one of eventual compromise, though not in the absence of circumstances forcing both parties to the table,” says Citi economist Tina Fordham, who correctly called the preservation of D.C.’s status quo. “Our expectation continues to be that the trail of last-minute, heart-attack compromises will continue, given the same actors retaining their positions, with appetite for comprehensive reform limited.”
Today’s lower trading, says FTN Financial economist Chris Low, “likely reflects the conventional wisdom that it would have been easier for Romney to postpone the tax increases and spending cuts that make up the fiscal cliff than it will be for Obama”
Financial stocks were among the day’s biggest losers. Bank of America gave up 5.6%. Citigroup lost 4.6%. JPMorgan Chase declined 4.6%.
Technology stocks also piled up woes. Apple lost 3.1%. Microsoft fell 2.2%.
[This article was published by Forbes on November 7, 2012. It was written by Abram Brown.]
