Wall Street greeted a second term for President Barack Obama the way it greeted the first.
Investors dumped stocks Wednesday in the sharpest sell-off of the year. With the election only hours behind them, they focused on big problems ahead in Washington and in Europe.
Frantic selling recalled the days after Obama's first victory, as the financial crisis raged and stocks spiraled downward.
Four years later, American voters returned a divided government to power and left investors fretting about a package of tax increases and government spending cuts that could stall the economic recovery unless Congress acts to stop it by Jan. 1.
“It's going to be very messy,” said James Dunigan, who helps oversee $112 billion as chief investment officer in Philadelphia for PNC Wealth Management. “The wrestling around the fiscal cliff is going to leave a lot of bruises along the way. While I think we'll get there, the path is not clear.”
In Europe, leaders warned that unemployment could remain high for years, and cut their forecasts for economic growth for this year and 2013. The head of the European Central Bank said not even powerhouse Germany is immune.
The Dow Jones industrial average ended down 313 points, its biggest point drop since this time last year.
“It does look ugly,” said Robert Pavlik, chief market strategist at Banyan Partners. He said it was hard to untangle the impact of Europe-related selling from nerves about the nation's fiscal uncertainty.
“It's a combination of all that, quite honestly,” Pavlik said.
It was the worst day for stocks this year, but not the worst after an election. That distinction belongs to 2008, when Obama was elected at the depths of the financial crisis. The Dow fell 486 points the next day and more than 400 the following day.
On the day after the 28 other presidential elections since 1900, the stock market has gone up 13 times and down 15 times, according to research by Bespoke Investment Group, a market research company.
With the 2012 election over, traders turned to Europe's increasingly sickly economy, dragged down by a debt crisis for more than three years. The 27-country European Union said unemployment there 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. In the spring, the group predicted no change.
Renewed focus on European economic problems also pushed the price of oil down $4.27 per barrel, its biggest decline of the year, to finish at $84.44, the lowest since July 10.
The Dow closed down 312.95 points, or 2.4 percent, at 12,932.73 — its first close below 13,000 since Aug. 2.
The Standard & Poor's 500 index fell 33.86 points, or 2.4 percent, to 1,394. That was the broader index's first close below 1,400 since Aug. 30.
The Nasdaq composite index lost 74.64 points, or 2.5 percent, to 2.937.29.
It's natural for traders to now focus on Europe's problems, said Peter Tchir, who manages the hedge fund TF Market Advisors.
What they're tuning in to, he said, is the failure of a major European summit last week and minimal progress on the issues that are holding the region back.
“People can only digest one or two stories at a time, and people had put Europe on the back burner” before the election, he said.
As jitters about the election subsided, traders confronted an ugly reality: The so-called fiscal cliff, which will impose automatic tax increases and deep cuts to government spending at the end of the year unless the president and Congress reach a deal.
That's no easy task for a deadlocked government whose overall composition has barely changed — a Democratic president and Senate and a Republican House.
If Congress and the White House don't reach a deal, the spending cuts and tax increases could total $800 billion next year. Some economists say that could push the economy back into recession.
Former Federal Reserve Chairman Alan Greenspan said the U.S. election perpetuated the political status quo and hasn't increased the probability of resolving the nation's fiscal challenges.
“I'm concerned that the election per se has really not changed the balance very much of what's going on” in the debate over how to reduce the U.S. deficit, Greenspan said in an interview on Bloomberg Television. “We've got to resolve this issue. Unless and until we come to grips with this issue, we are not going to be able to look to the future with a considerable state of equilibrium and hope.”
Meanwhile, Fitch Ratings offered a warning Wednesday about the perils facing the U.S. If Obama does not quickly forge agreement with Congress to avert the fiscal cliff, the credit rating agency said, it may strip the U.S. of its sterling AAA credit rating.
Tobias Levkovich, a financial analyst at Citi Research, told clients Wednesday that a compromise on taxes and spending was likely in mid- to late January, but that stocks will probably fall in the meantime.
A deal early next year is much more likely “once the political class begins to negotiate realistically and as the consequences ... are too costly for either party to ignore,” he wrote.
WINNERS AND LOSERS
The stock market's big sell-off Wednesday hit most sectors hard, but there were winners, also:
Hospitals: Big, publicly traded hospital companies soared because of expectations that they will gain business under the health care law. HCA
Holdings leapt 9.4% and Tenet Healthcare 9.6%.
Gun makers: Smith & Wesson rose 9.6% to lead a rally among firearms manufacturers as traders speculated that President Barack Obama's re-election will spur gun sales. Obama said last month he would consider reintroducing a ban on civilian purchases of military-style assault weapons.
Coal companies: They had hoped that a Mitt Romney administration would loosen mine safety and pollution rules that make it more costly for them to operate. Alpha Natural Resources fell 12.2% and Arch Coal 12.5%.
Banks: They figure to face tougher regulation under Obama. Morgan Stanley fell 8.6% and Bank of America 7.1%.
Health insurers: The health care law imposes fees and restrictions on the companies, potentially threatening their profitability. Humana slid 7.9% and Wellpoint 5.5%.
Defense firms: With Obama seeking to restrain the growth of military spending, defense companies could struggle. Lockheed Martin lost 3.9% and Northrop Grumman 4.6%.
This report includes material from Bloomberg News. Copyright 2012 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.