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Wall Street succumbed to heavy selling Wednesday in a post-election rout triggered by concerns that sharp divides in Washington will create more fiscal uncertainty as the nation hurtles toward the "fiscal cliff."
The Dow Jones Industrial Average plunged 313 points, or 2.4%, to 12933, the S&P 500 slid 33.9 points, or 2.4%, to 1395 and the Nasdaq Composite fell 74.6 points, or 2.5%, to 2937.
The selloff was broad, with every major sector falling at least 1%. Leading the way lower were financial and energy stocks. The Dow closed below the 13000 mark for the first time since August 2.
Volatility jumped 7.7% as tracked by the CBOE's VIX, regularly called Wall Street's fear gauge. Meanwhile, traders took shelter in the safety of U.S. Treasury bonds. The yield on the 10-year dropped 0.0113-percentage point to 1.638%.
Election Season Finally Comes to an End
After one of the most contentious campaigns in recent memory, Democratic President Barack Obama beat out Republican challenger Mitt Romney to secure a second term as president. Polls leading up to the election showed the two locked in essentially a dead heat.
The sense of business as usual cascaded to Congress as well, where Republicans held control of the House of Representatives and Democrats held the Senate. As a result of the remaining sharp divisions in the White House and on Capitol Hill, market participants almost immediately shifted their focus to the looming fiscal cliff. The fiscal cliff refers to the painful spending cuts and tax hikes that will automatically go into effect in January should politicians in Washington, D.C. not get the nation's fiscal situation under control.
"Given the opposing views on the speed and degree of fiscal consolidation necessary, the status quo outcome implies difficult negotiations ahead on the fiscal cliff ... and the debt ceiling," analysts at Nomura wrote in a note to clients.
Echoing that view, Moody's Investor Service said delays on further budget action are "increasingly likely," according to a report by Dow Jones Newswires. The ratings company also reiterated its warning that it may cut the American's credit rating down from its current top-notch status. So far, Standard & Poor's is the only major rater to have the U.S. rated at less than a triple-A.
Barclays chopped down its year-end view for the S&P 500 to 1325 1395 as a result of the uncertainty in Washington.
“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,” the investment bank's Barry Knapp wrote in a note to clients.
European Jitters Return
Traders were also paying close attention to Greece, where the country's parliament was set to vote on yet another austerity package aimed at easing its enormous debt burden. The vote is critical in securing another round of rescue aid from the European Union and International Monetary Fund and stave off a debt default that could send shockwaves through global financial markets.
Commodities sold off on the back of the weakness in equity markets. The benchmark crude oil contract plunged $4.27, or 4.8%, to $84.44 a barrel. Wholesale New York Harbor gasoline nose dived 4.1% to $2.589 a gallon.
In metals, gold fell $1.00, or 0.06%, to $1,714 a troy ounce.
The Euro Stoxx 50 fell 1.4% to 2501, the English FTSE 100 dipped 0.57% to 5851 and the German DAX sold off by 1.3% to 7285.
In Asia, the Japanese Nikkei 225 slipped 0.03% to 8973 and the Chinese Hang Seng climbed 0.71% to 22100.