Why the Wall Street saw its biggest sell-off in 2012
NDTV | Updated On: November 08, 2012 11:09 (IST)
Hours after President Obama defeated Republican challenger Mitt Romney in a cliffhanger election, the Wall Street saw its sharpest sell-off of the year. The Dow Jones industrial average plunged 313 points or 2.4 percent to 12,933. It was the worst day for stocks this year. Both the Dow and the S&P 500 closed at their lowest levels since early August.
Here's why the Wall Street fell sharply:
- Fiscal cliff: If a deal to reduce the fiscal deficit isn't reached by January 1, tax increases and government spending cuts to the tune of $800 billion automatically take effect. This could push the economy back into recession.Divided polity: The government's overall composition has barely changed. The Republican Party retained control of the U.S. House of Representatives, while the Senate remained under Democratic control.Double dip recession: The possibility of a recession has not faded entirely. Some economists say such a withdrawal of fiscal stimulus has the potential to throw the world's biggest economy back into recession.Possible ratings downgrade: Fitch Ratings said that the U.S. government's top 'AAA' rating would be at risk if Congress and the president did not immediately forge an agreement to avoid the fiscal cliff. The government's failure to come up with a plan to reduce the deficit led Standard & Poor's to cut its rating of long-term U.S. Treasury securities last year from a sterling AAA to AA+. It was the first-ever downgrade of U.S. government debt.Concerns over more regulations: Energy companies and bank stocks took some of the biggest losses. Banks figure to face tougher regulation in a second Obama term than they would have under Romney. Coal companies, which had hoped that a Romney administration would loosen mine safety and pollution rules that make it more costly for them to operate, were the biggest losers.Heavyweights underperform: Apple shares fell nearly 4 per cent contributing to the Nasdaq's decline. The slump puts the stock of the world's most valuable publicly traded company in bear market territory.Europe crisis refuses to fade away: The 27-country European Union said unemployment could remain high for years. The European Commission, the executive arm of the EU, said that it expects the region's economic output to shrink 0.3 percent this year.(With inputs from agencies)
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