Business leaders and investors on Wall Street reacted cautiously to President Obama’s re-election early Wednesday, warning that the focus would quickly shift from electoral politics to the looming fiscal uncertainty in Washington.
Stocks opened sharply lower in New York, with the Standard & Poor’s 500-stock index down 1.4 percent, while European shares drifted lower and Asian stocks were mixed. While many executives on Wall Street and in other industries favored Mitt Romney, most had already factored in the likelihood of Mr. Obama winning a second term.
“The bottom line is that this looks like a status quo election,” said Dean Maki, chief United States economist at Barclays. “The problem with that is that it doesn’t resolve some of the main sources of uncertainty that are hanging over the economy.”
Companies in some sectors, like hospitals and technology, could see a short-term pop, said Tobias Levkovich, chief United States equity strategist with Citi. Other areas, like financial services as well as coal and mining, could be hurt as investors contemplate a tougher regulatory environment.
Mr. Levkovich predicted that the market would remain volatile between now and mid-January. If Congress and the president cannot come up with a plan to cut the deficit, hundreds of billions in Bush-era tax cuts are set to expire at the beginning of 2013 while automatic spending cuts will sharply cut the defense budget and other programs.
Known as the fiscal cliff, this simultaneous combination of dramatic reductions in government spending and tax increases could push the economy into recession in 2013, economists fear.
In early trading, the Euro Stoxx 50 index, a barometer of euro zone blue chips, fell 1 percent, while the FTSE 100 index in London was 0.4 percent lower.
The S.&P./ASX 200 in Australia closed up 0.7 percent, as did the Hang Seng Index in Hong Kong. The Nikkei 225 stock average in Japan ended trading little changed.
“There’s a huge question mark hanging over what happens in the next few weeks,” said Aric Newhouse, senior vice-president of policy and government relations at the National Association of Manufacturers. “The fiscal cliff is the 800-pound gorilla out there.”
“We can’t wait,” he said. “We think the idea of going over the cliff has to be taken off the table. We’ve got to get to the middle ground.”
For all the anticipation, some observers said the election still left plenty of unanswered questions.
“While we have clarity on the players now, we don’t have any more clarity on what will happen in terms of the fiscal cliff,” Mr. Maki said. “We still have a divided government and they haven’t been able to agree on what to do.”
If the full package of tax increases and spending cuts go into effect, that would equal a $650 billion blow to the economy, Mr. Maki said, equivalent to 4 percent of the gross domestic product.
Mr. Maki envisions a partial compromise, with $200 billion in tax increases and spending cuts. Partly because of that, he estimates, the annual rate of economic growth will dip to 1.5 percent in the first quarter of 2013 from 2.5 percent in the fourth quarter. He predicted that if the full fiscal cliff were to hit, the economy would contract in the first half of 2013.
Fiscal Impasse Leads to Caution After Election
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Fiscal Impasse Leads to Caution After Election
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Fiscal Impasse Leads to Caution After Election