Stocks take a dive after Obama's victory

 

Washington, USA

Investors are looking at the world in the wake of President Barack Obama's re-election victory. And they don't like what they see.

The "fiscal cliff" looms, and the pathway for Obama and Congress to reach agreement and avert steep tax hikes and spending cuts Jan. 1 appears tenuous and uncertain. Moreover, the Greek Parliament was debating controversial austerity measures — passing them early Thursday — and investors are concerned that unrest over the bill's cuts and tax increases could send a new wave of crisis across Europe.

Those concerns drove the U.S. stock market down Wednesday, with the Standard & Poor's 500-stock index dropping 2.4 percent. The Dow Jones industrial average shed 313 points, also 2.4 percent. Major European markets were down, as well, including those in Britain, France and Germany.

Even more dramatic was the swing in the bond market. Money flooded into U.S. Treasurys overnight, driving the yield on 10-year securities down 11-hundredths of a percentage point, to 1.64 percent. When investors are antsy about the global economic situation, they tend to plow money into Treasurys as a safe harbor.

In other words, on Wednesday, every major market indicator was pointing toward more angst about the economic future. The trading floors of Wall Street, London and beyond were jittery. A measure of expected future market volatility known as the VIX index was up 9 percent.

Some of the slide could be seen as simply nervousness that Obama's tax and regulatory agenda could damage corporate profits. That interpretation isn't supported by the stock market's movements during the race itself, however, when there was little correlation between movement in the polls and the market. (For example, Republican nominee Mitt Romney's surge after the first presidential debate prompted no jump in stock prices.)

The unease over the tumultuous situation in Greece explains a drop in the euro against the dollar and a surge in Spanish and Italian borrowing costs.

But there is a strong case that a major reason for the market dive is that global investors are starting to look at what will happen to U.S. economic policy in the very near term — over the next two months — and see more reason for fear than for rejoicing.

The good news for investors was that the election's outcome was reasonably crisp. Markets had feared a confidence-rattling series of recounts and legal battles. But Obama's victory was decisive enough to prevent that possibility, and Asian markets initially rose overnight as television networks began calling the race for him.

As investors digest the results, however, they are looking at a broader set of risks presented by the election returns. The high-stakes brinkmanship that characterized the debt-ceiling standoff last year is looking like a mere preview of an even greater, more intense series of negotiations set to begin almost immediately.

"Returning to status quo likely means all sides see the voters as supporting their views, which means reaching compromise is not likely to get any easier," said analysts at Bank of America-Merrill Lynch in a report.

Taxes are on track to rise sharply and government spending to be slashed if Obama and Congress fail to reach a deal before Jan. 1. To get its way, each side could threaten to allow the nation to go off the fiscal cliff, despite the risk of a recession. (How willing anyone is to actually let that happen is a different matter.)

And although control of the country might not have been left hanging in the balance, Tuesday's results did nothing to change the basic dysfunctional dynamic between the two political parties. Congressional Republicans retained the House majority, an endorsement, in their view, of their hard-line stance against raising taxes. Democrats kept control of the Senate and the White House, which they see as an affirmation of their contention that deficit reduction must include tax increases.

"The re-election of President Obama removes one uncertainty that has been weighing on the markets over the last few months," said Paul Ashworth and Paul Dales, of Capital Economics in a research note Wednesday morning. "But they are none the wiser about if, how and when Congress will deal with the colossal tightening in fiscal policy scheduled to occur early next year."

Against that backdrop, stock, bond and currency traders can be forgiven for feeling a bit on edge.

News
people
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
News
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
people
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvDownton Abbey review: It's six months since we last caught up with the Crawley clan
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
Sport
premier league
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Sport
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
News
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
News
i100
News
i100
Sport
Plenty to ponder: Amir Khan has had repeated problems with US immigration because of his Muslim faith and now American television may shun him
boxing
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Head of Marketing and Communications - London - up to £80,000

£70000 - £80000 per annum: Ashdown Group: Group Head of Marketing and Communic...

Nursery Nurse

Negotiable: Randstad Education Manchester: Level 3 Nursery Nurse required for ...

Nursery Nurse

Negotiable: Randstad Education Manchester: L3 Nursery Nurses urgently required...

SEN Teaching Assistant

Negotiable: Randstad Education Manchester: We have a number of schools based S...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments