U.S. republican presidential candidate Mitt Romney, himself a multi-millionaire, has long enjoyed support from corporate elites and billionaires alike. Now that he lost the election, how would they react?
Stocks suffer their biggest one-day plunge in a year amid postelection concerns and worries about the coming fiscal fight in Congress. The Dow Jones Industrial Average dropped 312.95 points, or 2.4%, to 12932.73. That is its biggest one-day fall since Nov. 9, 2011. It also sent the Dow to its 3-month low.
The declines followed a day of broad-based gains, which many investors and traders had attributed to hopes for more political certainty after the election. But Wednesday’s selloff shattered that notion. “Despite the reelection of President Obama clearing up some of the political uncertainty in the US, stocks are selling off,” said Charles Schwab & Co. analysts.
Now that the White House and Congress are split between Democrats and Republicans, investors are fearful of a contentious battle over taxes and the deficit that could take the U.S. government to the brink of another crisis. Last year, political brinkmanship on deficit reduction helped trigger a downgrade of the U.S. government’s credit rating by Standard & Poor’s.
This time, the concern is the “fiscal cliff,” scheduled tax increases and spending cuts set to take place on Jan. 1 unless Congress reaches a compromise to avert the policy changes. The market is worried that legislators may not reach a compromise until the last minute, if at all.
“By returning a divided government to Washington, the electorate has given neither party a clear mandate to address the lackluster recovery, the fiscal cliff, and the looming debt crisis,” said Brian Kessler at Moody’s Analytics.
In a report Wednesday, Fitch Ratings said that failing to avoid the fiscal cliff would tip the U.S. economy into an avoidable recession and result in an increase in the unemployment rate to above 10% in 2013. “Failure to avoid the fiscal cliff and raise the debt ceiling in a timely manner, as well as securing agreement on credible deficit reduction, would likely result in a rating downgrade in 2013,” Fitch said.
The sharp fall in U.S. dragged down European trading and Asia is expected to follow later on. “The minute such a deal is cut, we’ll boom. If one is not cut - and soon - we may well double-dip into recession,” said Robert L. Reynolds, president and chief executive of Putnam Investments in Boston.
“This upcoming lame-duck session may just be the most consequential in our lifetimes. The stakes are high and the time is short,” he said in a statement. Energy, insurance, defense and the banking sectors are the hardest hit after Obama defeated Republican Mitt Romney, whose policy positions favored those industries.
Big, publicly-traded hospital companies soared because of expectations that they will gain business under the health care law, known as ObamaCare. HCA Holdings leapt 9.4 percent, Tenet Healthcare 9.6 percent, Community Health Systems 6 percent and Universal Health Services 4.3 percent.
Health insurance stocks sank, defying many analysts’ expectations. ObamaCare will expand coverage of the uninsured in 2014, giving insurers millions of new customers. But the overhaul also imposes fees and restrictions on the companies, potentially threatening their profitability. Humana slid 7.9 percent, UnitedHealth Group 3.8 percent, Aetna 4.2 percent and Wellpoint 5.5 percent.
With Obama seeking to restrain the growth of military spending, defense companies could struggle to win government contracts. Their stocks fell sharply: Lockheed Martin lost 3.9 percent, Northrop Grumman 4.6 percent and General Dynamics 3.9 percent.
Among the 10 industry groups in the S&P 500 index, financial stocks and energy companies fell the most. Banks figure to face tougher regulation in a second Obama term than they would have under Romney. JPMorgan Chase fell 5.6 percent, Citigroup 6.3 percent, Bank of America 7.1 percent, Goldman Sachs 6.6 percent and Morgan Stanley 8.6 percent.
The biggest losers were coal companies, which had hoped that a Romney administration would loosen mine safety and pollution rules that make it more costly for them to operate. Peabody Energy dived 9.6 percent, Consol Energy 6.1 percent, Alpha Natural Resources 12.2 percent and Arch Coal 12.5 percent.