Vote, European woes spur 312.95 Dow dive

Investors focusing on big problems ahead in Washington and Europe dumped stocks Wednesday in the sharpest sell-off of the year.

Frantic selling recalled the days after President Barack Obama’s first victory, as the financial crisis raged and stocks spiraled downward.

Four years later, American voters returned Obama to power and left investors fretting about a package of tax increases and government spending cuts that could stall the economic recovery unless Congress acts to stop it by Jan. 1.

In Europe, leaders warned that unemployment could remain high for years, and theycut their forecasts for economic growth for this year and 2013. The head of the European Central Bank said not even powerhouse Germany is immune.

The Dow Jones industrial average fell as much as 369 points, or 2.8 percent, in the first two hours of trading. It recovered steadily in the af-ternoon, but slid again at the end and finished down 312.95, its biggest point drop since this time last year.

“It does look ugly,” said Robert Pavlik, chief market strategist at Banyan Partners LLC. He said it was hard to untangle the effect of Europerelated selling from nerves about the nation’s fiscal uncertainty.

“It’s a combination of all that, quite honestly,” Pavlik said.

It was the worst day for stocks this year, but not the worst after an election. That distinction belongs to 2008, when Obama was elected at the depths of the financial crisis. The Dow fell 486 pointsthe next day.

This time, energy companies and bank stocks took some of the biggest losses. Both industries would have faced lighter, less costly regulation if Mitt Romney had won the election.

Stocks seen as benefiting from Obama’s decisive reelection rose. They included hospitals, suddenly free of the threat that Romney would roll back Obama’s healthcare law.

Obama was elected Nov. 4, 2008.

The Dow plunged more than 400 points on each of the next two trading days.

The blue-chip average hit bottom at 6,547.05 in March 2009, less than two months after Obama took office.

Then it doubled over the next three-plus years as thecrisis eased and a fragile economic recovery took root.

Things were looking so good that until recently, some analysts were betting on when the market might hit an all-time high.

Of course, the market today is far less precarious than it was in 2008. The financial system has stabilized. Europe is tackling its debt crisis, despite frequent setbacks.

The housing market has seen improvements, and the economy has added jobs for more than two and a half years.

On the day after the 28 other presidential elections since 1900, the stock market has gone up 13 times and down 15 times, according to research by Bespoke Investment Group, a market research company.

The best day-after performance was in 1900, another re-election. The Dow jumped more than 3 percent on the day after William McKinley won a second term, according to Bespoke.

With the 2012 election over, traders turned to Europe’s increasingly sickly economy, dragged down by a debt crisis for more than three years. The 27-country European Union said unemployment there could remain high for years.

The European Commission, the executive arm of the European Union, said it expects the region’s economic output to shrink 0.3 percent this year. In the spring, the group predicted no change.

For next year, the commission predicted 0.4 percent growth, barely above recession territory. It predicted 1.3 percent last spring.

Renewed focus on European economic problems also pushed the price of oil down $4.27 per barrel, its biggest decline of the year, to finish at $84.44, the lowest since July 10.

The Dow closed down 2.4 percent, at 12,932.73, its first close below 13,000 since Aug. 2.

The Standard & Poor’s 500 index fell 33.86 points, or 2.4 percent, to 1,394. That was the broader index’s first close below 1,400 since Aug. 30.

The Nasdaq composite index lost 74.64 points, or 2.5 percent, to 2.937.29.

Falling stocks overwhelmed rising ones 5-to-1 on the New York Stock Exchange. Consolidated volume was a heavier than usual 4.3billion shares.

“Obama’s re-election does not change the bigger economic or fiscal picture,” Paul Ashworth of Capital Economics, an economic research company, said in a note to clients.

Fitch Ratings offered a warning Wednesday about the perils facing the U.S. If Obama does not quickly forge agreement with Congress to avert the “fiscal cliff,” the credit rating agency said, it may strip the U.S. of its sterling AAA credit rating.

The government’s failure to come up with a plan to reduce the deficit led Standard & Poor’s to cut its rating of long-term U.S. Treasury securities last year from a sterling AAA to AA+. It was the first-ever downgrade of U.S. government debt.

Business, Pages 23 on 11/08/2012

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