(Updates market activity.)
With President Obama’s victory Tuesday night, thoughts turn to what the election means for the economy. Stocks fell the most since June as investors returned their focus to old worries: the struggling U.S. economy and the debt crisis in Europe.
The Dow Jones Industrial Average plunged 312.95 to close at 12,932.73, a decline of more than 2 percent. The Standard & Poor’s 500 Index fell 2.4 percent to 1,394.53. Treasuries rose the most in five months.
Obama’s election in 2008 prompted the biggest post-election plunge in history for the Dow. Since then, though, the gains under Obama’s presidency have marked the biggest advance for stocks and bonds in more than a decade. Now, those gains may fade  as the economic reality of what still needs to be done begins to sink in with investors.
In his acceptance speech, Obama outlined a sizable to-do list that included the deficit, tax reform, reducing oil imports and immigration reform. The most immediate issue, though, is what the president and Congress can do to avert the fiscal cliff, the $600 billion in mandated tax increases and spending cuts set to take effect at year’s end. The president’s re-election ought to give him more authority over a lame-duck Congress. Then again, it’s congressional intransigence that created the fiscal cliff in the first place.
To avoid plunging the country into another, even deeper, recession, Congress will likely have to extend at least some of the Bush-era tax cuts that are set to expire. The president has said he wants to extend them for middle- and lower-income households and allow them to expire for the wealthy, which Republicans have opposed. It’s not clear who will blink first.
The president said he intends to meet with Republican challenger Mitt Romney to discuss issues where they might have common ground. Â Tax reform may be one of those areas. Romney’s proposal to reform the tax code by broadening the base and reducing loopholes and deductions, while short on specifics during the campaign, is a road map from which the president can work. Having won a second term, the president also might decide to dust off the Simpson-Bowles commission report, which calls for a similar tax overhaul.
Other big questions loom. With a second term comes a changing of the guard in the president’s Cabinet, and he’s expected to be looking for a new secretaries of treasury and energy. While Erksine Bowles has been mentioned as a Treasury secretary candidate — and he’d be a good one — the energy job is more wide open. The president’s first-term choice of Stephen Chu, a green energy supporter, proved divisive in the energy industry. One common complaint among oil companies is that there’s never been an energy secretary who’s come from the industry. That probably isn’t going to change this time around.
Meanwhile, the energy industry can expect an extension of existing policies on everything from environmental regulation to drilling on federal lands, none of which have been popular with oil companies. The re-election, though, may offer a break for wind energy companies that have been cutting jobs in the face of tax subsidies that are set to expire at year’s end.
Energy stocks posted some of the biggest declines today, led by the St. Louis-based coal company Peabody Energy, which fell $2.80, or 9.6 percent, to $26.24, and Devon Energy, an Oklahoma City oil and gas company, that slid $4.21, or 7 percent, to $55.41.
The president’s re-election also has big implications for the health-care industry. Romney had vowed to repeal the president’s healthcare reform law. Instead, the biggest changes under that law will begin to kick in during the next two years. Of course, the changes have already been priced into the market.
Some healthcare stocks also were battered today, with hospital company Humana posting one of the biggest decline on the S&P. Its shares fell $6, or 8 percent, $70.16.
Another big loser in today’s market: financial services companies. Wall Street put its money behind Romney in protest of Obama’s reforms, and it isn’t likely to fare much better now that Elizabeth Warren is in the Senate.
A big winner in Tuesday’s election was Federal Reserve Chairman Ben Bernanke. His monetary stimulus efforts have been panned by Republicans and Romney said he would replace Bernanke when his term expired in January 2014. Obama’s re-election buys time for the Fed’s latest round of quantitative easing, known as QE3, although it hasn’t been having much effect in stimulating the economy. The Fed has done all it can do. It can keep money cheap for the next few years, but the deciding factor comes back to Congress and what it decides to do.
We should get a sense of that in the coming weeks. Was Obama’s win big enough to break congressional gridlock, or are we likely to continue lurching from crisis to crisis as lawmakers and the administration bicker?