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Dow plummets as investors worry about ‘fiscal cliff’

Post-election fiscal reality hits Wall Street

James Dresch of MND Partners Inc. worked on the floor of the New York Stock Exchange the day after President Obama won reelection.

Henny Ray Abrams/Associated Press

James Dresch of MND Partners Inc. worked on the floor of the New York Stock Exchange the day after President Obama won reelection.

The Dow Jones Industrial Average fell sharply Wednesday following President Obama’s re-election, as investors absorbed the reality that the same political players in Washington, D.C., now must address the nation’s so-called fiscal cliff, which looms at year’s end.

“You’ve got pretty much the same recipe as before -- a Democratic president and House Republicans,’’ said Nigel Gault, chief US economist for IHS Global Insight in Lexington. “If Obama says, ‘I insist on there being a tax increase for high-income Americans,’ and you have Congress saying, ‘No tax increases,’ you hit the cliff.”

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The Dow closed down 313 points, more than 2.3 percent, to 12,933, after falling as much as 369 points earlier in the day. It was the worst single-day drop of the year. Financial and energy stocks were hit particularly hard.

Bernard R. Horn Jr., president and portfolio manager of Polaris Capital Management, a Boston investment firm, said that between the coming threat of higher taxes and budget cuts, as well as ongoing financial troubles in Europe, there was little in the near term to calm financial markets.

“We spent huge amounts of money and incalculable amounts of human capital” on the election, Horn said. “And after that whole process, we basically get that same gridlock government. And everybody’s hoping things will somehow change.”

The question is whether the negative narrative can change in the weeks ahead, Gault said. On Tuesday, stocks rose by triple digits on optimism about an end to political uncertainty as the presidential campaign concluded. Only one factor the day after had changed enough to possibly help end Washington gridlock, analysts said -- the fact that Obama is staying for another four years and Republicans in Congress will face pressure to act before their re-elections come up in a couple of years.

“We’ve had the election, the power has not moved in [Republicans’] favor. And decisions will have to be taken,’’ IHS’s Gault said.

Beth Healy can be reached at bhealy@globe.com.
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