Fiscal cliff, recession threat take center stage on Wall Street
Now that Wall Street knows President Obama will stay in the White House, investors’ attention has returned to looming crises facing the U.S. and European economies.
Major stock indexes were down more than 2% midway through the first trading session after election day.
At the top of the agenda is the “fiscal cliff,” the automatic spending cuts and tax hikes looming at year’s end. If Obama cannot successfully resolve the crisis with a House still controlled by Republicans, economists have warned that the “cliff” could slow growth and push the U.S. back into recession.
“We’ve gotten certainty on the presidency and now we move into the uncertainty of where we were before -- the fiscal cliff,” said Quincy Krosby, a market strategist at Prudential Financial. “The market’s not going to have much patience to wait to see when the negotiations begin in earnest and how they evolve.”
The Dow Jones industrial average regained some ground but was still down 303 points, or 2.3%, to 12,943 in midday trading.
The broader Standard & Poor’s 500 index was down 32 points, or 2.2%, to 1,396. The Nasdaq was down 71 points, or 2.4%, to 2,941.
Corporations reported sluggish revenues in the third quarter, signaling slowing economic growth regardless of the fiscal cliff, Krosby noted. Declining company fortunes could lead to job cuts and further drags on economic growth as consumer demand falls.
Also weighing on investors’ minds: Continuing worries out of Europe. Economic data out of Germany indicate that not even the continent’s most powerful economy is immune to the Eurozone slowdown, as European Central Bank President Mario Draghi noted in remarks Wednesday.