NEW YORK - Stocks ended sharply lower Wednesday, one day after the re-election of President Obama. The Dow Jones industrial average closed down about 313 points, or 2.4%.
Investor reaction is decidedly negative over the defeat of the more business-friendly Mitt Romney and the continued gridlock in Congress that makes it tough for lawmakers to avert a fiscal policy crisis by year-end.
The benchmark Dow remains below the psychologically significant 13,000, not seen since Aug. 3. The Standard & Poor's 500 index and Nasdaq composite index ended down 2.3% and 2.5%, respectively, with stocks in nearly every industry lower.
Wall Street pros said negative sentiment was amplified Wednesday after European Central Bank President Mario Draghi expressed concerns ahead of the U.S. market open about the outlook for Europe's economies, especially Germany.
Others said much of the sell-off is coming from computerized trading programs, which trigger huge sell-offs of stocks at pre-set prices hit versus investors making decisions on the spot about what they think of a stock's outlook. One exception: Apple (AAPL) shares closed at $558.13, off 3.8% Wednesday. That puts the computer and gadget maker in correction territory, which is still about off 20% from its September intraday high $705.07 a share.
Investors are focusing on what Obama and Congress will do to avert the looming so-called "fiscal cliff." The biggest fear is Washington's inability to compromise in a lame-duck session over a host of mandated budget cuts and tax cut expirations set to kick in Jan. 1 unless there's a bipartisan deal on deficit reduction. Fears are that lack of a deal will roil markets and derail the economic recovery.
One major source of disagreement in the fiscal debate is that Obama wants to boost revenues by taxing the rich.
Only when a deal is forged on tax reform, entitlements and deficit reduction, will investors gain the level of clarity needed to deliver a jolt of confidence to markets, says David Joy, chief market strategist at Ameriprise Financial.
"Investors and companies need to know the rules of the game, whether those rules are to their liking or not," says Joy. "A (fiscal cliff) deal is more important than the fact that the election is over."
"The re-elected president must immediately act to avoid the fiscal cliff," says David Kotok, chief investment officer at
Cumberland Advisors. "Massive negotiations lie ahead."