A case of post-election nerves sent stocks plunging today as investors, again anxious about a recession, wondered what impact a Barack Obama...
NEW YORK — A case of post-election nerves sent stocks plunging today as investors, again anxious about a recession, wondered what impact a Barack Obama presidency would have on business and the overall economy. Volatility returned on Wall Street, with the Dow Jones industrials falling more than 400 points and all the major indexes tumbling more than 5 percent.
The Dow Jones industrial average closed down 486.01, or 5.1 percent, at 9,139.27.
The S&P 500 index fell 52.98, or 5.3 percent, to 952.77. The Nasdaq composite index fell 98.48, or 5.5 percent, to 1,681.64.
The market was expected to give back some gains after a six-day runup that lifted the Standard & Poor’s 500 index more than 18 percent. But investors lost some of their confidence about the economy and began dumping stocks again; light volume helped exaggerate the price swings, and there was more late-day selling by hedge funds.
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Analysts said the market is also growing anxious about whom Obama selects as the next Treasury Secretary, as well as whom he picks for other Cabinet positions.
“A lot of the policy going forward is going to have an effect on the various sectors of the market,” said Joe Keetle, senior wealth manager for Dawson Wealth Management.
Obama’s victory means that industries such as oil and gas producers, utilities and pharmaceuticals may face greater regulation and even taxes, while labor unions and automakers are expected to benefit.
In addition, banks, insurance companies, hedge funds and the rest of the financial sector will almost certainly face attempts at a regulatory overhaul by the Democratic Congress next year.
The economy, and how long and deep the current downturn will be, weighed heavily on the market today.
“I think what is happening in the market is a continuation of really the last few weeks,” said Subodh Kumar, global investment strategist at Subodh Kumar & Associates in Toronto. “The markets are still incorporating the slowdown in the global economy.”
“I would put what we’re seeing today not so much as disappointment about policy from the incoming administration and more about continuing to incorporate assessments about how weak economies are,” he said.
Analysts said investors were growing uneasy in advance of the Labor Department’s October employment report, to be issued Friday. Economists on average expect a 200,000 drop in payrolls, according to Thomson/IFR. Employers have been slashing jobs after a freeze-up in the credit markets crippled many companies’ ability to get financing.
The market showed no initial reaction to the release of the Institute for Supply Management’s services sector index, which fell to 44.4 in October from 50.2 in September. But the decline, a steeper drop than the market expected, did add to the overall gloom on the Street.
Today’s trading, which followed a 300-point jump in the Dow on Tuesday, showed that the market is living up to expectations of continued volatility as it tries to recover from the devastating losses of the last two months.
Bill Stone, chief investment strategist at PNC Wealth Management said the uncertainty over the direction the government’s financial bailout plan will take under the next administration likely weighed on financial stocks today.
Analysts agree that Obama’s most immediate priority will be dealing with the nation’s financial crisis and deciding how to further implement the $700 billion rescue package passed by Congress last month. He is expected to move quickly to get a team in place to work with outgoing Treasury Secretary Henry Paulson.
“You’ve got to believe that the Obama camp knows you have to have a smooth transition,” Stone said.
In addition to monitoring the direction the next administration will take, investors continue to heed the state of the credit markets. The paralysis in the credit markets that began after the bankruptcy of Lehman Brothers in mid-September has been alleviated somewhat by a series of government interventions, but they still show some signs of strain.
“The credit markets are starting to show some improvement, and I think that has to continue for all the markets to do well,” Keetle said.
Banks continued to ratchet down the rates they charge one another for borrowing today, but the key interbank lending rate — the London interbank offered rate, or Libor — remains well above the Federal Reserve’s target interest rate of 1 percent. Libor for three-month dollar loans fell to 2.51 percent from 2.71 percent Tuesday.
And the bid for Treasury bills remains high. The three-month bill, considered one of the safest assets around, fell to 0.40 percent from 0.48 percent late Tuesday. A low yield indicates high demand. The yield on the benchmark 10-year Treasury note fell slightly to 3.68 percent from 3.73 percent late Tuesday.
The dollar was mixed against other major currencies, while gold prices fell.
Other sectors that are being closely watched in light of the election results are pharmaceuticals and alternative energy, analysts said.
Light, sweet crude dropped $4.88 to $65.65 a barrel on the New York Mercantile Exchange.
In Asian trading, Japan’s Nikkei index rose 4.46 percent, and Hong Kong’s Hang Seng Index rose 3.17 percent. Britain’s FTSE 100 fell 2.34 percent, Germany’s DAX index fell 2.11 percent, and France’s CAC-40 fell 1.98 percent.