March on Wall Street South in Charlotte on September 2, 2012. The demonstration focused on the Democatic National Convention being held in the second largest banking center in the U.S. (Photo: Abayomi Azikiwe), a photo by Pan-African News Wire File Photos on Flickr.
Updated November 7, 2012, 4:20 p.m. ET
Dow Plunges 312.95 to 3-Month Low
By JONATHAN CHENG
Wall Street Journal
Stocks skidded to their biggest one-day loss in a year amid postelection concerns and worries about the coming fiscal fight in Congress.
Last August, President Obama and Congress put the U.S. economy on course to go over a "fiscal cliff." With the 2012 presidential election decided, WSJ's David Wessel tells you everything you need to know about the "cliff" but were afraid to ask.
The Dow Jones Industrial Average dropped 312.95 points, or 2.4%, to 12932.73. That handed the blue-chip average its biggest one-day fall since Nov. 9, 2011. It also sent the Dow to its lowest level since August.
The Standard & Poor's 500-stock index gave up 33.85 points, or 2.4%, to 1394.53, with all 10 of the sectors and 94% of the 500 stocks losing ground. The technology-oriented Nasdaq Composite declined 74.64 points, or 2.5%, to 2937.29.
The declines followed a day of broad-based gains, which many investors and traders had attributed to hopes for more political certainty after the election. But Wednesday's selloff shattered that notion.
With the two houses of Congress split between Democrats and Republicans, investors are fearful of a contentious battle over taxes and the deficit that could take the U.S. government to the brink of another crisis. Political brinkmanship on deficit reduction helped trigger a downgrade of the U.S. government's credit rating by Standard & Poor's in August 2011.
This time, the concern is the "fiscal cliff," scheduled tax increases and spending cuts set to take place on Jan. 1 unless Congress reaches a compromise to avert the policy changes. The split houses of Congress, and continued partisan rancor, have fueled worries that legislators may not reach a compromise until the last minute, if at all.
In a report Wednesday, Fitch Ratings said that failing to avoid the fiscal cliff would tip the U.S. economy into an avoidable recession and result in an increase in the unemployment rate to above 10% in 2013.
"Failure to avoid the fiscal cliff and raise the debt ceiling in a timely manner, as well as securing agreement on credible deficit reduction, would likely result in a rating downgrade in 2013," Fitch said.
Remarks late in the trading day by Republican House Speaker John Boehner, suggesting that he was open to compromise with the president, did little to assuage investor concerns, with stocks sinking lower after his remarks.
Barry Knapp, head of U.S. equity portfolio strategy at Barclays, BARC.LN -2.76% turned more bearish after the election, arguing that the risk of a fiscal-cliff disaster have increased to more than half, from about 30%.
Mr. Knapp lowered his expectations for the S&P 500 to finish this year at 1325, from a previous estimate of 1395. If Mr. Romney had won, Mr. Knapp would have expected the S&P 500 to rally to 1500 by year's end. Instead, with Mr. Obama's strong victory, "I see a government that grew further apart, and that might be worse than status quo."
Leading the declines were financial and energy stocks, as crude-oil prices tumbled and the outlook for coal darkened.
Exxon MobilXOM -3.14% fell and ChevronCVX -2.58% declined while coal stocks, weighed down by declines of 12% or more at Alpha Natural ResourcesANR -12.16% and Arch Coal, ACI -12.47% were hit hard. Railroad shares, which rely heavily on coal shipments, were also weak.
Financial stocks were hit hard by investor concerns about the impact of electoral wins by Elizabeth Warren in Massachusetts and Alan Grayson in Florida. Both congressional Democrats have taken a strong line on banking regulation, potentially increasing scrutiny for financial companies. Bank of AmericaBAC -7.14% and J.P. Morgan ChaseJPM -5.60% tumbled to lead the Dow laggards. CitigroupC -6.29% and Morgan StanleyMS -8.58% also dropped.
"Regulation is what any industry dreads the most, whether you're in coal or in the banks," said Mike Boyle, portfolio manager at Advisors Asset Management.
Among hospital stocks, which were seen benefiting from an Obama victory, HCA HoldingsHCA +9.44% and Tenet HealthcareTHC +9.58% rallied. Health-care peer UnitedHealthUNH -3.78% declined.
Adding to the U.S. concerns were developments in Europe, where markets erased early gains to turn lower.
Concerns over the impact of the euro-zone crisis on Germany came to the fore after German industrial production for September showed a monthly decline. Separately, European Central Bank President Mario Draghi said in remarks prepared for delivery in Frankfurt that the euro-zone debt crisis is beginning to have an impact on the German economy.
The Stoxx Europe 600 lost 1.3%, following the U.S. declines, while the German DAX gave up 2%.
Also weighing on investor sentiment in Europe were concerns over a parliamentary vote in Greece on new austerity measures, which are needed for Greece to receive the next dose of bailout funds from international lenders.
In Asia, benchmark indexes in Shanghai and Tokyo finished roughly unchanged, while Hong Kong's Hang Seng Index and Australia's S&P/ASX 200 each rose 0.7%.
Gold prices slipped slightly to settle at $1,713.20 a troy ounce, while crude-oil prices tumbled 4.8%, to settle at $84.44 a barrel. The dollar moved higher against the euro but lost ground against the yen. Demand for Treasurys gained, sending the yield on the 10-year note down to 1.632%.
LPL Financial Chief Market Strategist Jeff Kleintop on what the election results mean for the economy and the markets, especially with the impending fiscal cliff on the horizon. Photo: Reuters.
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In corporate news, PlexusPLXS -26.65% plunged after the electronic-components supplier said it was informed that it would no longer by a supplier to Juniper Networks, JNPR +1.31% its biggest customer. Juniper rose.
AT&TT -3.34% fell after it unveiled plans to invest $14 billion over the next three years to expand its wireless and wireline broadband networks, in an effort to support increased customer demand for high-speed Internet. At the same time, the company boosted its quarterly dividend.
Sprint NextelS -1.92% slipped after it agreed to buy some wireless spectrum and customers from U.S. CellularUSM -12.40% for $480 million and the assumption of some debt. U.S. Cellular, which also reported a drop-off in subscriptions, fell.
AmyrisAMRS +4.25% advanced after the renewable fuels and chemicals company reported a much narrower-than-expected third-quarter loss and revenue that was nearly double what analysts had projected.
LivePersonLPSN -11.38% skidded after the provider of chat services reported third-quarter earnings that matched estimates but revenue that came up short, and provided a fourth-quarter earnings and revenue outlook that were below projections.
Time WarnerTWX +4.18% gained after the media company reported third-quarter earnings that exceeded estimates while affirming its full-year earnings outlook.
Write to Jonathan Cheng at jonathan.cheng@wsj.com
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