U.S. stocks plunged Wednesday, with the Dow Jones industrial average closing below the 13,000 mark for the first time since Aug. 2, as investor focus turned to the budget debate and Europe's debt crisis following President Barack Obama's re-election.
The Dow closed down 312.95 points, or 2.36% to 12,932.73; the Dow had been above 13,000 since it closed at 12,878.88 on Aug. 2. The S&P 500 fell 33.86 points, or 2.37%, ending at 1,394.53; and the Nasdaq composite closed down 74.64 points, or 2.48%, at 2,937.29. All numbers are preliminary.
“It's a rush to safe haven,” said James Paulsen, chief investment strategist at Wells Capital Management. His firm oversees about $325 billion. “We're selling off further on rising fears about what a fiscal cliff negotiation is going to mean here. People bring all their worst fears in. At the end of the day, you have the fiscal cliff, Europe and you see a risk-off trade.”
Mr. Obama defeated Republican Mitt Romney, boosting speculation policymakers will add to stimulus in the world's largest economy. While Mr. Obama received at least 303 electoral votes to Mr. Romney's 206, Republicans kept a majority in the House of Representatives. Democrats retained control of the Senate.
Investors will now turn their focus to the $607 billion of tax increases and federal spending cuts set to kick in automatically in January, the so-called fiscal cliff. The Congressional Budget Office has said the U.S. economy would slow by as much as 0.5% next year if Congress fails to keep the increases from taking effect.
Investors also watched the latest developments in Europe's attempt to tame its debt crisis. Greek police beat back protesters outside Parliament with tear gas and water cannons as Prime Minister Antonis Samaras fought for approval of austerity measures demanded by the country's lenders. European Central Bank President Mario Draghi said inflation risks are “very low” and the debt crisis is starting to hurt Germany.