Stocks plunge after election as Europe woes deepen 7-11-2012

Stocks plunge after election as Europe woes deepen 7-11-2012

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The Dow was on track for its worst decline in a year Wednesday as investors dumped stocks after President Barack Obama won re-election and turned their focus to a world of problems — a deepening recession in Europe and tax increases and spending cuts that could stall the U.S. economic recovery.

The Dow Jones industrial average plummeted as much as 369 points, or 2.8 percent, in the first two hours of trading. The Standard & Poor’s 500 index fell as much as 40 points, or 2.8 percent.

Energy companies and bank stocks took some of the biggest losses. Both industries presumably would have faced lighter, less costly regulation if Republican Mitt Romney had won the election.

“It does look ugly,” said Robert Pavlik , chief market strategist at Banyan Partners LLC. He said it’s hard to untangle Europe-related selling from nerves about U.S. fiscal policy.

“It’s a combination of all that, quite honestly,” Pavlik said.

Stocks seen as benefiting from Obama’s decisive win rose. They included hospitals, free of the threat that a Romney administration would have sought to roll back Obama’s signature health care law, and renewable-energy companies.

Traders’ attention returned to an increasingly sickly European economy, dragged down by a debt crisis for more than three years. The 27-country European Union said unemployment could remain high for years.

The European Commission, the executive arm of the EU, said it expects the region’s economic output to shrink 0.3 percent this year. In the spring, the group predicted no change.

For next year, the commission predicted 0.4 percent growth, barely above recession territory. It predicted 1.3 percent last spring.

U.S. stock futures were higher overnight after Obama cruised to victory. They turned sharply lower after the European forecasts and discouraging comments from Mario Draghi, president of the European Central Bank. European markets turned negative as well.

Now that the election has been resolved, it’s natural for traders to focus on Europe’s problems, said Peter Tchir, who manages the hedge fund TF Market Advisors.