Stocks fall amid concern over US fiscal problems

There was no Obama honeymoon for stock markets yesterday, with shares around the world beaten down by renewed worries about the US president’s immediate fiscal problems.

In the US, stocks had fallen by 2 per cent by early evening, leaving the SP 500 on track for its biggest drop since June.

Analysts said investors had immediately switched attention from the election to the so-called “fiscal cliff” faced by the US government at the end of the year and were now worried about a new recession.

“The market is telling us that it was pricing in the potential for a Romney victory, based upon the rally over the past few days,” said Phil Orlando, chief market strategist for equities at Federated Investors of Pittsburgh in the US.

Investors are concerned that Barack Obama is facing into a lengthy impasse with a Republican congress over some $600 billion in spending cuts and tax increases due to come into effect next year. Mr Obama wants to avoid this fiscal cliff by extending some Bush-era tax cuts.

Healthcare, banking and energy stocks fared badly yesterday, reflecting a belief that a Republican victory would have favoured those sectors.

The SP energy index lost more than 3 per cent on investors’ fears that companies in the sector are likely to see more regulation in Mr Obama’s second term, with less access to federal lands and water.

Healthcare stocks fell on recognition that the president’s healthcare reform would remain in place, with the SP healthcare index losing 2.5 per cent. Defence shares were also losers, while oil was heading for its most significant decline of the year.

European shares were hit as soon as US markets opened, with the Stoxx Europe trading down to close 1.4 per cent weaker and London’s FTSE 100 declining by 93.27 points, or 1.6 per cent. The negative mood from across the Atlantic was compounded by renewed concerns about the European economy.

Shares also weakened in Dublin, although positive news from a handful of stocks such as Glanbia helped to stem the decline. The Dublin market was still down by 1.44 per cent at the close. One Dublin dealer said the fiscal cliff worries kicked in as the US woke, with the immediacy of the problem hitting home. “The sense was that if Romney had got in, it would have been more market-positive because he’s more of a businessman,” he said.

The euro fell yesterday, punished by the commission’s new forecasts and the general reaction to Mr Obama’s re-election.

“The euro wasn’t helped by the European Commission slashing future European growth forecasts,” noted Justin Doyle of Investec Bank Ireland. – (Additional reporting Bloomberg, Reuters)