U.S. stocks fell Wednesday as investors’ focus returned to the U.S. tax debate and Europe’s debt crisis following the re-election of President Barack Obama.
All 10 groups in the Standard & Poor’s 500 index retreated as energy, financial and industrial companies had the biggest losses
The S&P 500 declined 1.8% to 1,403.31 at 10:35 a.m. EST, while the Dow Jones industrial average fell 240.76 points, or 1.8%, to 13,004.92.
“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.
While Mr. Obama’s victory in 2008 spurred the biggest plunge ever for the Dow on the day after an election, gains for American assets over the past four years are among the best in the developed world. Fed Chairman Ben S. Bernanke’s actions to revive the economy helped send the Dow up 67%. The Dow has gained 3.9 percentage points more than the MSCI ACWI since Mr. Obama’s inauguration, beating 16 of 24 developed countries.
Investors also watched the latest developments in Europe’s attempt to tame its debt crisis. Greek lawmakers vote Wednesday on a bill that contains austerity measures demanded by the so-called troika that oversees eurozone bailouts insists. European Central Bank President Mario Draghi said inflation risks are “very low” and the debt crisis is starting to hurt Germany, Europe’s largest economy.
