U.S. stocks slumped Wednesday, giving the Dow Jones Industrial Average its biggest decline in a year, as investors’ focus turned to the budget debate and Europe’s debt crisis following President Barack Obama’s re-election.
Bank of America Corp. and JPMorgan Chase & Co. slumped at least 5.6 percent. Apple Inc. retreated 3.8 percent, extending a plunge from its September high to 21 percent.
The S&P 500 fell 2.4 percent to close at 1,394.53. The Dow lost 312.95 points, or 2.4 percent, to 12,932.73. Volume for exchange-listed stocks in the United States was 7.9 billion shares, or 32 percent above the three-month average.
“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.”
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 election perpetuated the political status quo and hasn’t increased the probability of resolving the fiscal challenges. Barclays Plc reduced its estimate for where the S&P 500 will end this year by 5 percent on concern a divided American government will delay a resolution over spending cuts and taxes.
Companies which are most-tied to the pace of economic growth led the losses in equities today. The Morgan Stanley Cyclical Index sank 2.3 percent, the most since June 25.
A measure of financial shares in the S&P 500 slumped 3.5 percent. Banks also led the losses in the Dow. Bank of America (NYSE: BAC) sank 7.1 percent to $9.23. JPMorgan (NYSE: JPM) slid 5.6 percent to $40.48. Goldman Sachs Group Inc. (NYSE: GS) lost 6.6 percent to $117.98. Morgan Stanley (NYSE: MS) sank 8.6 percent to $16.63.
Bankers were hoping Romney would win and give them more sympathetic regulators or that Republicans would take the Senate and they could rewrite Dodd-Frank financial overhaul law passed in 2010, said Edward Mills, a bank policy analyst at FBR Capital Markets in Arlington, Va., and former aide on the House Financial Services Committee.
“Neither happened and the floodgate is going to open for the final rules under Dodd-Frank to go into effect and it’s likely to come in the next three to six months,” Mills said. “The industry has gone from a posture of trying to delay to now where they are going to be pushing for certainty.”
Lincoln National Corp. (NYSE: LNC) tumbled 7.8 percent to $23.79, leading a decline among life insurers. Treasury yields declined as Obama’s re-election bolstered speculation the Fed will continue buying bonds to support the economy.
“A prolonged period of low interest rates is bad for insurers, resulting not only in lower investment earnings and profit compression on spread-based products, but also higher reserve increases and meaningful writedowns of goodwill,” Neil Strauss, a senior credit officer at Moody’s Investors Service, wrote in a Nov. 5 research note.
Shares of defense contractors such as Lockheed Martin Corp. (NYSE: LMT) and Raytheon Co. (NYSE: RTN) fell after President Obama defeated Romney, who had proposed boosting military spending. Lockheed, the world’s biggest defense company, dropped 3.9 percent to $91.15. Northrop Grumman Corp. (NYSE: NOC) fell 4.6 percent to $66.70.
Smith & Wesson Holding Corp. (Nasdaq: SWHC) climbed 9.6 percent to $10.37. Investors are wagering that more Americans will buy guns after the win by Obama, who said last month he would consider reintroducing a ban on civilian purchases of military-style assault weapons.