ECONOMIC INDICATORS

U.S. stocks fall most since June after presidential elections

BLOOMBERG FILE PHOTO/TIM BOYLE
U.S. STOCKS FELL, snapping a two-day advance, on the re-election of President Barack Obama.
Posted 11/7/12

(Updated, 2 p.m.)

NEW YORK - U.S. stocks fell, driving the Standard & Poor’s 500 Index toward the biggest decline since June, as investor focus turned to the budget debate and Europe’s debt crisis following President Barack Obama’s re-election.

All 10 groups in the S&P 500 declined as financial, energy and technology shares had the biggest losses. Bank of America Corp. and JPMorgan Chase & Co. slumped at least 4.5 percent. Peabody Energy Corp. and Alpha Natural Resources Inc. slid more than 8.2 percent on bets Obama’s re-election will mean more regulation for the coal industry. Apple Inc. fell 3.1 percent, extending a plunge from an intraday high to 20 percent.

The S&P 500 fell 2 percent to 1,399.99 at 1:28 p.m. in New York. The Dow Jones Industrial Average lost 274.08 points, or 2.1 percent, to 12,971.60. Trading in S&P 500 companies was 37 percent above the 30-day average at this time of day.

“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.

Fiscal cliff

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 U.S. election yesterday perpetuated the political status quo and hasn’t increased the probability of resolving the nation’s fiscal challenges.

“I’m concerned that the election per se has really not changed the balance very much of what’s going on” in the debate over how to reduce the U.S. deficit, Greenspan said today in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “We’ve got to resolve this issue. Unless and until we come to grips with this issue, we are not going to be able to look to the future with a considerable state of equilibrium and hope.”

Europe’s crisis

Investors also watched the latest developments in Europe’s attempt to tame its debt crisis. Greek lawmakers vote today on a bill that contains austerity measures demanded by the so-called troika that oversees euro-area bailouts insists. European Central Bank President Mario Draghi said inflation risks are “very low” and the debt crisis is starting to hurt Germany, Europe’s largest economy.

“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 declines in the equity market today. The Morgan Stanley Cyclical Index sank 2 percent, the most since Sept. 25.

A measure of financial shares in the S&P 500 slumped 2.9 percent. Banks also led the losses in the Dow. Bank of America sank 5.6 percent to $9.38. JPMorgan slid 4.5 percent to $40.94. Goldman Sachs Group Inc. lost 5.2 percent to $119.63. Morgan Stanley sank 7.2 percent to $16.89.

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