Markets Drop as ‘Fiscal Cliff’ Fears Grow on Obama Reelection

November 7 (RIA Novosti) – US stock markets fell sharply Wednesday in the wake of European declines a day after President Barack Obama’s reelection as investors focused on the approaching “fiscal cliff” and worried that the White House and Congress will remain incapable of compromise on US finances.

In early afternoon trading, the Dow Jones Industrial Average was just under the psychological threshold of 13,000 points, having shed 263 points, or nearly two percent of its value, in trading during the first half of the day following Obama’s reelection victory.

While Obama was returned to the White House, his Republican Party opponents retained control of the House of Representatives, dimming prospects in the eyes of many investors of a compromise before a combination of tax increases and spending cuts – dubbed a “fiscal cliff” – take effect January 1.

“Investor reaction is decidedly negative over the defeat of the more business-friendly Mitt Romney and the continued gridlock in Congress that makes it tough for lawmakers to avert a fiscal policy crisis by year-end,” USA Today commented in a story posted on its website.

It said much of the selloff was due to computerized trading that automatically places sell orders when stocks drop to a predetermined level and added traders were also spooked by comments earlier in the day overseas from the head of the European Central Bank on the health of Europe’s economies.

The trend was reinforced by fears that a failure – considered likely by many – of Obama and Congress to find a compromise on taxation and spending to avert the “fiscal cliff” at the end of the year could upset US markets, negatively impact the recovery and also harm fragile economies around the world.

“The reelected president must immediately act to avoid the ‘fiscal cliff’,” the paper quoted David Kotok, chief investment officer at Cumberland Advisors, as saying. “Massive negotiations lie ahead.”

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