Day after election, stocks plummeted
BY DAVID ROEDER Business Reporter email@example.com November 7, 2012 9:38AM
The trading floor of the CBOE S&P 500 pit was a flurry of market action today, first day after the election of Obama. The day ended with the 500 down 33.86 points to 1394.53 on November 7, 2012. | Al Podgorski~Chicago Sun-Times
Updated: December 9, 2012 7:26PM
For investors, Wednesday was the start of new political era. It did not begin auspiciously, because it looked like the old political era.
Stocks fell in the first session after President Barack Obama’s re-election. The outcome wasn’t a surprise; so-called prediction markets months ago settled on Obama as the favorite and investors took up positions in stocks thought to benefit from a second Democratic term.
But the election, close in the popular vote and breaking along clear regional and racial lines, essentially sent the same crew back to Congress as well. It was as if Wall Street woke up to the consequences of what it had long expected.
Uppermost in peoples’ minds was the yearend “fiscal cliff” of mandated tax increases and spending cuts that will take place without a bipartisan agreement on deficit reduction. Bad news out of Europe, with new projections of an economic slowdown and another protest against austerity in Greece, also pushed shares lower.
Economists said the cliff’s requirements are a toxic potion for an economy still in tenuous health.
“There will be a lot of brinksmanship, and that will hurt the economy and likely upset the financial markets,” said Mark Zandi, chief economist at Moody’s Analytics.
The Dow Jones industrial average fell 312.95 points, 2.4 percent, to 12,932.73 — its worst day in a year. The Standard & Poor’s 500 index lost 33.86, 2.4 percent, to 1,394.53 and the Nasdaq composite index tumbled 74.64, 2.5 percent, to 2,937.29.
Amid the general damage to stocks were signs that investors were sorting companies according to the election’s implications. Financial stocks took a beating on the likelihood that tighter financial regulations embodied in the Dodd-Frank Act will remain in place and that Obama will enforce them with zest in a second term.
Bank of America Corp. shares lost 7.1 percent to close at $9.23. Goldman Sachs Group Inc. shares retreated 6.6 percent to $117.98.
Local bank stocks BankFinancial Corp., MB Financial Inc. and PrivateBancorp Inc. all posted declines of about 4.5 percent to 9 percent and were among the loss leaders in Chicago area companies.
Large local losers in the market’s worst day for the broader markets since June were wireless service provider Telephone & Data Systems Inc., which surrender 16.6 percent of its value to $21.87 a share, and one of its subsidiaries, United States Cellular Corp., which fell 12.4 percent to $34.18 a share. They rattled investors with earnings reports and an announcement that U.S. Cellular is withdrawing from the Chicago market, selling its customers here to Sprint.
An Obama administration could push for higher taxes on the wealthy and on investment income, such as from dividends. That could pressure stocks that are popular with dividend-seekers, and Wednesday some were down but not as sharply as the broader market. Examples include Exelon Corp., off 1.6 percent, and Johnson & Johnson, a 0.9 percent decliner.
Some analysts saw the selloff as setting up the market for a yearend rally. The bulls also said several sectors are likely to benefit under Obama.
Areas they cite include construction companies and stocks expected to prosper under health-care reform, including hospitals and insurance companies. Hospital owner Tenet Healthcare Corp. rose 9.6 percent to $27.34, but insurer UnitedHealth Group Inc. fell 3.8 percent to $54.26.
Analysts Tom Dwyer and Michael Welch at Cancaccord Financial Inc. said stocks should see “a meaningful advance through yearend.” They said the fourth quarter of an election usually features a robust advance in the Standard & Poor’s 500.
Dwyer and Welch said their 2013 target for the S&P 500 remains 1,650, 18 percent higher than the present level.
Sherry Cooper, chief economist at BMO Financial Group, believes the fiscal cliff will see a settlement and that stocks will rally.
“Indeed, the next four years are going to be a gift to the next president— regardless of who had won — just as the past four years was a nightmare,” she wrote in a note to clients. “The U.S. is on the rebound and growth could well accelerate to the 3 percent range by 2014 thanks to the one missing link in the tepid recovery — housing. Household formation is returning to normal and pent-up demand for housing and related goods is huge.”