Stocks sink on fiscal angst after US vote

2012-11-08 07:45

New York - Shares on world markets slumped and the euro slid further on Wednesday as investors worried that the fiscal challenges facing US President Barack Obama a day after his re-election could lead to a new recession.

Fresh concerns about Europe’s debt crisis added to the jitters among investors, who scrambled for safer assets. Benchmark US Treasury yields were set for their biggest one-day fall since May.

Markets doubted that Obama can reach a timely deal with Republican lawmakers in the lame-duck session of a divided Congress to avert the “fiscal cliff” - some $600bn in automatic tax hikes and spending cuts set to kick in on January 1.

“The minute such a deal is cut, we’ll boom. If one is not cut - and soon - we may well double-dip into recession,” said Robert Reynolds, president and chief executive of Putnam Investments in Boston.

Rhetoric from Obama and some top lawmakers on Wednesday suggested a possibility of reaching a compromise to avoid to a dire path for the economy and further erosion of the country’s creditworthiness, but the contentious history between the two main political parties offered little confidence to investors.

Traders were also anxious about a vote in Greece’s parliament later on Wednesday on an austerity package needed to secure a fresh injection of international aid and avert  bankruptcy, which would rock the euro zone and world markets.

Back on Wall Street, the market drop hark back to the one on the day after Obama won his first White House term in 2008.

The Standard & Poor’s 500 index was set for its worst one-day loss since June. It ended down 33.86 points at 1 394.53.

The Dow Jones industrial average finished down 312.95 points at 12 932.73, while the Nasdaq Composite Index was down 74.64 points at 2 937.29.

Energy, healthcare, defense and the banking sectors ranked among the hardest hit after Obama defeated Republican Mitt Romney, whose policy positions favoured those industries.

Despite Wednesday’s ominous market reaction to a second Obama presidential term, the S&P had rallied 67% from the depth of global credit crisis under his first term - one of Wall Street’s best runs ever under a single president.

The FTSE Eurofirst 300 index of top European shares closed down 1.4%, its biggest drop in two weeks, at 1 099.35.

Bucking the market were French banking stocks. They were helped by BNP Paribas’ forecast-beating quarterly earnings, which sent its shares 1.0% higher to €39.54.

European and Asian stock markets rose initially on relief buying when US election results for the White House and Congress were clear and reinforced expectations the Federal Reserve’s ultra-loose monetary policy will continue.

The MSCI world equity index was briefly 0.4% higher before falling 1.46% to 326.86.

As worries over the US fiscal cliff and Greece’s austerity votes moved to the forefront, investors flocked to the safety of low-risk assets, including the greenback and US and German government bonds.

Gold turned lower after hitting a two-week high. It was last 0.3% lower at $1 720.40/oz.