Benchmarks suffered heavy losses on Wednesday following Barack Obama’s victory, as investors’ focus switched to the impending “fiscal cliff” debate and Europe’s debt crisis. Both the S&P 500 and Dow finished yesterday’s trading session at their lowest levels since the beginning of August. All 10 industry groups in the S&P 500 tumbled and ended in the red. The financial and the energy sectors were the biggest losers. Meanwhile, European Central Bank (ECB) President Mario Draghi said the risk of inflation in Europe is very low, but the debt crisis is starting to affect Germany.
The Dow Jones Industrial Average (DJI) tumbled 2.4% to close the day at 12,932.73. The Standard & Poor 500 (S&P 500) slumped 2.4% to finish yesterday’s trading session at 1,394.53. The tech-laden Nasdaq Composite Index crashed 2.5% to end at 2,937.29. The fear-gauge CBOE Volatility Index (VIX) surged 8.5% to settle at 19.08. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 7.81 billion shares, slightly lower than the previous year’s daily average of 7.84 billion shares. Declining stocks easily outpaced the advancers on the NYSE; as for 79% stocks that fell, only 19% stocks moved higher.
Benchmarks took a battering after Barack Obama was re-elected as the country’s president. The blue-chip index lost more than 300 points while the S&P 500 registered its biggest one day drop since June 21. The uncertainty over the presidential election is over now and investors have shifted their focus to the major problems facing the U.S. and Europe’s economy.
Investors are now increasingly worried about the so called “fiscal cliff”. The debate over the fiscal cliff of $600 billion in spending and tax increases will intensify during next year budget session. This issue has already been affecting domestic markets for months. According to market experts, the fiscal cliff need to be resolved or else it will dent the growth of the economy and could possibly bring in another recession. The growth of the domestic economy would decline by 0.5% in the coming year if Congress fails to resolve the fiscal cliff.
Among the sectors, the defeat of Republican candidate Mitt Romney affected the financial sector severely. Romney had earlier said that Federal Reserve Chairman Ben Bernanke will have to resign if he wins. The Fed policy of keeping the interest rate at a record low increases the lending business of the banks; but low interest rates negatively affect banks’ profit margins.
The Financial Select Sector (XLF) tumbled 3.3%. Stocks such as JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), Goldman Sachs Group, Inc. (NYSE:GS), PNC Financial Services (NYSE:PNC) and Bank of America Corp (NYSE:BAC) lost 5.6%, 6.3%, 6.6% 4.2% and 7.1%, respectively.
The energy and defense sectors also suffered setbacks following Obama’s win. Romney’s proposed policies were seen to be favorable towards those industries. Romney had earlier said that he will increase military spending. Additionally, market experts opine that the energy sector may have to face further regulations during Obama’s second term.
The Energy Select Sector SPDR (XLE) lost 2.6%. Stocks such as Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), Marathon Oil Corporation (NYSE:MRO), Petroleo Brasileiro Petrobras SA (NYSE:PBR) and BP plc (NYSE:BP) tumbled 3.1%, 2.6%, 4.0%, 2.7% and 1.7%, respectively.
On the domestic front, consumer credit increased by $11.4 billion in September, beating consensus estimates of $9 billion. Consumer credit increased at a seasonally adjusted annual rate of 5% in September and 4% in the third-quarter. Non-revolving credit surged at an annual rate of 6.5%, whereas revolving credit was down 1.5% annually.