U.S. stocks slumped, giving the Dow Jones Industrial Average its biggest decline in a year, as investors’ focus turned to the budget debate and Europe’s debt crisis following President Barack Obama’s re-election.
All 10 groups in the Standard & Poor’s 500 Index fell as financial shares had the biggest losses. Bank of America Corp. and JPMorgan Chase & Co. slumped at least 5.6 percent. Peabody Energy Corp. and Alpha Natural Resources Inc. slid more than 9.6 percent on bets Obama’s re-election will mean more regulation for the coal industry. Apple Inc. retreated 3.8 percent, extending a plunge from its September high to 21 percent.
The S&P 500 fell 2.4 percent to 1,394.53 at 4 p.m. in New York. The Dow lost 312.95 points, or 2.4 percent, to 12,932.73. Volume for exchange-listed stocks in the U.S. was 7.9 billion shares, or 32 percent above the three-month average.
“It’s going to be very messy,” said James Dunigan, who helps oversee $112 billion as chief investment officer in Philadelphia for PNC Wealth Management. He spoke in a telephone interview. “The wrestling around the fiscal cliff is going to leave a lot of bruises along the way. While I think we’ll get there, the path is not clear.”
Obama defeated Republican Mitt Romney, boosting speculation policy makers will add to stimulus in the world’s largest economy. While Obama received at least 303 electoral votes to Romney’s 206, Republicans kept a majority in the House of Representatives. Democrats retained control of the Senate.
Now that the election has been decided, investors will 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 percent next year if Congress fails to keep the increases from taking effect.
Former Federal Reserve Chairman Alan Greenspan said the election perpetuated the political status quo and hasn’t increased the probability of resolving the fiscal challenges. Barclays Plc reduced its estimate for where the S&P 500 will end this year by 5 percent on concern a divided American government will delay a resolution over spending cuts and taxes. Barry Knapp, head of U.S. equity strategy at Barclays’s securities unit, cut his 2012 forecast for the S&P 500 to 1,325 from 1,395.
“With a polarized federal government we see little reason to increase the probability of avoiding the tax cliff, avoid brinksmanship over the debt ceiling or to expect pro-growth tax and entitlement reform in 2013,” Knapp wrote in a note to clients today. “In the near-term, we suggest cutting risk.”
Investors also watched the latest developments in Europe’s attempt to tame its debt crisis. Greek police beat back protesters outside Parliament with tear gas and water cannons as Prime Minister Antonis Samaras fought for approval of austerity measures demanded by the country’s lenders. European Central Bank President Mario Draghi said inflation risks are “very low” and the debt crisis is starting to hurt Germany.
“It’s a rush to safe haven,” said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management. His firm oversees about $325 billion. “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.”
Companies which are most-tied to the pace of economic growth led the losses in equities today. The Morgan Stanley Cyclical Index sank 2.3 percent, the most since June 25.
A measure of financial shares in the S&P 500 slumped 3.5 percent. Banks also led the losses in the Dow. Bank of America sank 7.1 percent to $9.23. JPMorgan slid 5.6 percent to $40.48. Goldman Sachs Group Inc. lost 6.6 percent to $117.98. Morgan Stanley sank 8.6 percent to $16.63.
Bankers were hoping Romney would win and give them more sympathetic regulators or that Republicans would take the Senate and they could rewrite Dodd-Frank financial overhaul law passed in 2010, said Edward Mills, a bank policy analyst at FBR Capital Markets in Arlington, Virginia and former aide on the House Financial Services Committee.
“Neither happened and the floodgate is going to open for the final rules under Dodd-Frank to go into effect and it’s likely to come in the next three to six months,” Mills said. “The industry has gone from a posture of trying to delay to now where they are going to be pushing for certainty.”
Lincoln National Corp. tumbled 7.8 percent to $23.79, leading a decline among life insurers. Treasury yields declined as Obama’s re-election bolstered speculation the Fed will continue buying bonds to support the economy.
“A prolonged period of low interest rates is bad for insurers, resulting not only in lower investment earnings and profit compression on spread-based products, but also higher reserve increases and meaningful writedowns of goodwill,” Neil Strauss, a senior credit officer at Moody’s Investors Service, wrote in a Nov. 5 research note.
Coal companies took a gauge of energy shares in the S&P 500 down 3.1 percent. The industry has seen “increased regulatory oversight from the EPA on a number of issues under Obama’s first term, such as stricter permitting requirements in Appalachia and new regulations for emission reductions at utilities,” Lucas Pipes, an analyst at New York-based Brean Capital Carret & Co., said in an e-mail today. “There’s a perception that another Obama term is negative for coal.”
Peabody, the coal miner that’s largest in the U.S. by sales, fell 9.6 percent to $26.24. Bristol, Virginia-based Alpha, the second-biggest, dropped 12 percent to $8.45. Arch Coal Inc., Consol Energy Inc., James River Coal Co. and Walter Energy Inc. also declined.
Shares of defense contractors such as Lockheed Martin Corp. and Raytheon Co. fell after President Obama defeated Romney, who had proposed boosting military spending. Lockheed, the world’s biggest defense company, dropped 3.9 percent to $91.15. Northrop Grumman Corp. fell 4.6 percent to $66.70.
HCA Holdings Inc. and other hospitals will get more paying customers while insurers like UnitedHealth Group Inc. will see profits squeezed as President Obama moves to preserve the health-care overhaul he championed.
Obama’s re-election sent HCA, the largest for-profit hospital company, up 9.4 percent to $33.85 while Community Health Systems Inc. and Tenet Healthcare Corp. also saw gains on prospects for millions of newly insured patients being added to their admission rolls.
UnitedHealth, the largest U.S. medical insurer, fell 3.8 percent to $54.26 and WellPoint Inc., Humana Inc. and Aetna Inc. also saw declines as that industry faces profit limits and new taxes to help pay for the coverage expansion.
Smith & Wesson Holding Corp. climbed 9.6 percent to $10.37. Investors are wagering that more Americans will buy guns after the win by Obama, who said last month he would consider reintroducing a ban on civilian purchases of military-style assault weapons.
Apple sank 3.8 percent to $558. The world’s largest company by market value hasn’t been able to keep up with demand for the latest version of the iPhone, which accounts for about two-thirds of the company’s profit. Terry Gou, the chairman of iPhone-manufacturer Foxconn Technology Group, said today that its assembly plants are “falling short” of demand.
Time Warner Inc. rallied 4.2 percent to $44.91. The media company that owns HBO and the Batman film franchise reported third-quarter profit that topped analysts’ estimates after making gains in cable-network revenue.