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.
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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:
), Citigroup Inc. (NYSE:
), Goldman Sachs Group, Inc. (NYSE:
), PNC Financial Services (NYSE:
) and Bank of America Corp (NYSE:
) 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:
), Chevron Corporation (NYSE:
), Marathon Oil Corporation (NYSE:
), Petroleo Brasileiro Petrobras SA (NYSE:
) and BP plc (NYSE:
) 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.