U.S.
stocks slid, sending the Dow Jones Industrial Average to its biggest drop in a
year, oil sank and Treasuries surged the most in five months as President
Barack Obama’s re-election set up a budget showdown with the
Republican-controlled House.
The Dow
tumbled 312.95 points, or 2.4 percent, to 12,932.73 for its worst drop since
Nov. 9, 2011. The Standard & Poor’s 500 Index, which is up 64 percent since
Obama took office in 2009, lost 2.4 percent to 1,394.53, its lowest level since
August. Ten-year U.S. yields sank 12 basis points to 1.64 percent. Oil slid
almost 5 percent in its biggest decline of the year.
Enlarge image Dow Tumbles Most in Year, Treasuries Rally on
Budget
Dow Tumbles Most in Year, Treasuries Rally on Budget Dow
Tumbles Most in Year, Treasuries Rally on Budget Peter Foley/Bloomberg
Traders work on the floor of the New York Stock Exchange on
Nov. 7, 2012.
Traders work on the floor of the New York Stock Exchange on
Nov. 7, 2012. Photographer: Peter Foley/Bloomberg
Ritholtz: Sell-Off Is Wall Street's `Hissy Fit' 4:55 Nov. 7
(Bloomberg) -- On today's "Street Fighter," Fusion IQ's Barry
Ritholtz and Barclays' Michael Gapen talk about the market sell-off. They speak
on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Harry Wilson on Obama's Re-Election, Markets 5:00 Nov. 7
(Bloomberg) -- Harry Wilson, founder and chief executive officer of Maeva
Advisors LLC and a former adviser to President Barack Obama’s Auto Task Force,
talks about Obama's re-election and its impact on markets. He speaks with Erik
Schatzker and Stephanie Ruhle on Bloomberg Television's "Market
Makers." (Source: Bloomberg)
Obama Seeks to Build on Progress Made in First Term 20:40
Nov. 7 (Bloomberg) -- President Barack Obama speaks to supporters in Chicago
about his victory over Mitt Romney, the shared goals of Americans and the need
for Republicans and Democrats to work together. (Source: Bloomberg)
What Is Happening in the Markets? 5:20 Nov. 7 (Bloomberg) --
On today's "Technicals Vs. Fundamentals," Jefferies & Co.'s David
Zervos and LPL Financial's Jeffrey Kleintop discuss their investment strategies
for stocks and bonds. They speak on Bloomberg Television's "Lunch
Money." (Source: Bloomberg)
El-Erian Says Muni Debt Attractive After Election 10:30 Nov.
7 (Bloomberg) -- Mohamed El-Erian, chief executive officer and co-chief
investment officer of Pacific Investment Management Co., talks about the 2012
U.S. election, the outlook for financial markets, and fiscal and monetary
policies. He speaks with Betty Liu on Bloomberg Television's "In the
Loop." Jim Reynolds, chief executive officer of Loop Capital Markets LLC,
also speaks. (Source: Bloomberg)
Corpina: Obama Win Was Already Priced In to Markets 1:13
Nov. 7 (Bloomberg) – Jon Corpina of Meridian Equity Partners talks with
Bloomberg’s Matt Miller about market reaction to President Barack Obama’s
re-election. He speaks on Bloomberg Television’s “In The Loop.”
Greenspan, Rivlin, El-Erian on U.S. Fiscal Cliff 2:35 Nov. 7
(Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan, Alice Rivlin, a
senior fellow at the Brookings Institution, Mohamed El-Erian, chief executive
officer of Pacific Investment Management Co., and Peter Orszag, former director
of the Office of Management and Budget, talk about outlook for action to avert
a so-called U.S. fiscal cliff following the election of President Barack Obama
to a second term. This report also includes comments from former White House
spokesman William Burton, Potomac Research Group's Greg Valliere and Jefferies
& Co.'s David Zervos. (Source: Bloomberg)
Enact Fiscal Austerity With a Delay, Orszag Says 6:23 Nov. 7
(Bloomberg) -- Peter Orszag, vice chairman of corporate and investment banking
at Citigroup Inc. and former director of the Office of Management and Budget,
talks about the outlook for U.S. fiscal policy after President Barack Obama was
elected to a second term. He speaks with Tom Keene and Sara Eise on Bloomberg
Television's "Surveillance." (Orszag is a Bloomberg View columnist.
The opinions expressed are his own. Source: Bloomberg)
Obama
now faces negotiating with Congress to avoid the so- called fiscal cliff of
more than $600 billion in tax increases and spending cuts next year that
threaten to slow U.S. growth. European stocks erased early gains as concern
grew that the debt crisis was hurting Germany’s economy, while Greek police
beat back anti-austerity protesters outside parliament.
“It’s a rush to safe haven,” said James Paulsen, the chief
investment strategist at Minneapolis-based Wells Capital Management, which
oversees about $325 billion. “We’re selling off further on rising fears about
what a fiscal cliff negotiation is going to mean here. People bring all their
worst fears in. At the end of the day, you have the fiscal cliff, Europe and
you see a risk-off trade.”
‘Stocks Are Worth Less’
Obama
now must decide how to contend with opposition from Republicans who demand a
tax-cut extension for all income levels.
U.S.
House Speaker John Boehner said Republicans would be willing to agree to new revenue
from a tax system that would generate faster economic growth and be accompanied
by changes to entitlement programs. Boehner of Ohio said all sides are
“closer than many think” to being able to revise the U.S. tax code. The two
parties remain divided on what the top tax rate should be and on whether fresh revenue should come from
tax increases or only from economic growth.
The potential for higher taxes contributed to the slide in
stocks today, according to Bill Gross, co-chief investment officer of Pacific
Investment Management Co.
“The
marginal income-tax rate is probably going to go up with this fiscal
resolution, you know, from 35 to 40 percent, capital gains from 15 to 20,
dividends from 15 to who knows where,” Gross told Bloomberg Television.
“And ultimately if
dividend and capital-gains tax rates go up, then stocks are worth less and
that’s what you’re seeing.”
Market Leaders
Gauges of energy, financial, technology, telephone, industrial and utility shares
lost more than 2 percent to lead declines in all 10 of the main industry groups
in the S&P 500. Bank of America Corp. and JPMorgan Chase & Co. slid at
least 5.6 percent while Hewlett-Packard Co., Exxon Mobil Corp. and UnitedHealth
Group Inc. lost at least 3.8 percent for the biggest declines in the Dow, which
slid as much as 369 points.
The KBW
Bank Index sank 4.6 percent, the most since June, as all 24 of its companies
retreated. Bankers were hoping Romney would win and give them more sympathetic
regulators or that Republicans would take the Senate and they could rewrite the
Dodd-Frank overhaul of the industry, said Edward Mills, a bank policy
analyst at FBR Capital Markets in Arlington, Virginia, 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.”
Defense Stocks
The
iShares Dow Jones U.S. Aerospace & Defense Index Fund, which tracks
contractors such as United Technologies Corp., Boeing Co. and Lockheed Martin
Corp., sank 3 percent. “This is ‘Ground Zero’ for Fiscal Cliff stress,”
Dave Lutz, head of ETF trading and strategy at Stifel Nicolaus & Co. in
Baltimore, said in a note to clients.
Peabody Energy Corp., Alpha Natural Resources Inc. and other
U.S. coal producers slumped on speculation that Obama’s re-election will mean
more regulation for the industry.
Barclays
Plc reduced its year-end estimate for the S&P 500 by 5 percent on concern a
divided American government will delay the resolution over spending cuts and
taxes. Barry Knapp, head of U.S. equity strategy, cut his 2012 forecast for the
index to 1,325 from 1,395.
“With a
polarized federal government we see little reason to increase the probability
of avoiding the tax cliff, avoid brinksmanship over the debt ceiling or to
expect pro-growth tax and entitlement reform in 2013,” Knapp wrote in a
note to clients today.
Knapp’s Plays
Knapp said that while he “would not be tempted to add risk”
in economically-sensitive companies, he would buy stocks with high dividends if
they fall on concern that capital-gains tax will increase because the Fed would
probably respond to a slowdown created by higher taxes.
Twenty
companies in the S&P 500 are due to release earnings today, including Time
Warner Inc. and Kraft Foods Group Inc. (KRFT) Earnings have topped estimates at
about 72 percent of companies that have reported so far, while 60 percent
missed sales projections, data compiled by Bloomberg show.
While
Obama received at least 303 electoral votes to Republican Challenger Mitt
Romney’s 206, Republicans kept a majority in the House of Representatives.
Democrats retained control of the Senate.
The
election boosted speculation Federal Reserve Chairman Ben S. Bernanke’s
asset-purchase programs will be preserved. Bernanke’s stimulus has helped keep
the U.S. economy growing by purchasing $2.3 trillion of Treasuries and
mortgage-related bonds and instituting a plan to buy $40 billion of home-loan
securities a month. Romney had said he wouldn’t reappoint Bernanke to a third
term in 2014.
‘Question This Commitment’
“The
alternative was that Governor Romney would get elected, that he would name
someone to replace Bernanke and that the markets would question the
forward-guidance language, would question QE3, would question this commitment
to keep the foot on the accelerator well into the recovery,” Mohamed
El-Erian, chief executive officer of Pimco, the world’s biggest manager of bond
funds, told Bloomberg Television. “All that hasn’t happened and that’s why I
think the Fed will continue to be investors’ best friend.”
The
dollar strengthened against 13 of 16 major peers, climbing 0.4 percent to a
two-month high of $1.2770 against the euro
The
yield on two-year Treasury notes fell four basis points to 0.266 percent, the
lowest since Oct. 16. Ten-year yields, benchmarks for mortgages to corporate
bonds, fell from 1.75 percent yesterday and extended this year’s decline to
about 25 basis points. They have tumbled about 75 basis points since Obama took
office.
Bond Returns
U.S. bonds have returned 1.8 percent this year, including
reinvested interest, and about 15 percent since Obama took office, according to
Bank of America Merrill Lynch indexes.
Ever
since Lyndon B. Johnson defeated Barry Goldwater for the presidency in 1964,
yields on 10-year Treasuries have dropped about 40 basis points in the first
month when a Democrat wins, and risen 19 after a Republican victory,
according to data compiled by Bloomberg.
Oil
sank 4.8 percent to $84.44 a barrel to lead losses in 16 of 24 commodities
tracked by the S&P GSCI Index, which tumbled 2.4 percent for its biggest
drop since July.
The
Stoxx Europe 600 Index slid 1.4 percent, erasing earlier gains after
European Central Bank President Mario Draghi said the German economy is
beginning to be hurt by the euro-area debt crisis and the European Commission
said the region will virtually grind to a halt next year. German industrial
production fell for a second month in September, the Economy Ministry in Berlin
said today.
European Markets
About seven shares fell for each that advanced in the Stoxx
600, with commodity producers and banks leading declines among the gauge’s 19
industry groups. Randgold Resources Ltd. (RRS) sank 6.4 percent after the
producer of gold in West Africa said full-year output will be at the bottom of
its target.
BNP Paribas SA (BNP) rallied 1.1 percent as France’s largest
bank said third-quarter profit more than doubled after it posted higher revenue
at the investment-banking unit.
Greek Vote
Greek 10-year bonds erased earlier gains, pushing the yield
up 13 basis points to 17.35 percent. Prime Minister Antonis Samaras faces a
test of his coalition government as he seeks parliamentary approval of
austerity measures to unlock bailout funds amid the third general strike in six
weeks. Approval of the legislation is the first of the parliamentary votes
required by Nov. 12 to receive a 31 billion-euro ($40 billion) portion of
international aid. A roll-call vote was expected tonight in Athens.
Yields on German 10-year debt declined six basis points to
1.38 percent, the lowest in two months. Rates on Spanish and Italian debt of
similar maturity increased three basis points and one basis point respectively.
The exchange-traded fund tracking developing-nation shares
sank the most in two weeks as equity indexes from Hungary to Brazil fell along
with U.S. stocks and oil. BYD Co., the Chinese carmaker partly owned by Warren
Buffett’s Berkshire Hathaway Inc., surged 11 percent.
The iShares MSCI Emerging Markets Index ETF tumbled 1.5
percent. BYD led gains in industrial and technology companies in the MSCI
Emerging Markets Index, which was little changed.
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