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World stocks plunge as investors ponder Obama presidency

(Agencies)
Updated: 2008-11-06 07:38

New York -- A case of postelection nerves sent Wall Street plunging Wednesday as investors absorbing a stream of bad economic news wondered how a Barack Obama presidency will help the country weather a possibly severe recession. Volatility returned to the market, with the Dow Jones industrials falling nearly 500 points and all the major indexes tumbling more than 5 percent.

Four Barclays Capital specialists consult monitors on the trading on the floor of the New York Stock Exchange Wednesday, November 5, 2008. [Agencies]

The market was expected to give back some gains after a six-day runup that lifted the Standard & Poor's 500 index more than 18 percent. But investors lost some of their recent confidence about the economy and began dumping stocks again; light volume helped exaggerate the price swings.

And in Asia, stock markets tumbled Thursday, following Wall Street lower as US presidential election euphoria gave way to worries about the global economy and company profits.

Related readings:  Asian stock markets rise as US elects new leader  Wall Street jumps in record Election Day rally

Japan's Nikkei stock average retreated 6.5 percent to 8,899.14, and Hong Kong's Hang Seng Index lost 7.5 percent to 13,727.50

South Korea's benchmark Kospi index broke a five-session winning streak to dive 7.6 percent. Markets in Singapore, Australia and the Chinese mainland also dropped sharply.

The pullback was in line with weakness on Wall Street, where investor optimism surrounding the election of Democrat Barack Obama as president quickly evaporated in the face of gloomy economic news. The U.S. service sector, the largest component of America's gross domestic product, contracted sharply in October as new orders and employment fell.

"I think what is happening in the market is a continuation of really the last few weeks," said Subodh Kumar, global investment strategist at Subodh Kumar & Associates in Toronto. "The markets are still incorporating the slowdown in the global economy."

Worries about the financial sector intensified after Goldman Sachs Group Inc. began to notify about 3,200 employees globally that they have been lost their jobs as part of a broader plan to slash 10 percent of the investment bank's work force, a person familiar with the situation said. The cuts were first reported last month. Goldman fell 8 percent, while other financial names like Citigroup Inc. fell 14 percent.

Commodities stocks also fell after steelmaker ArcelorMittal said it would slash production because of weakening demand. Its stock plunged 21.5 percent.

Although the market expected Obama to win the election, as the session wore on investors were clearly worrying about the weakness of the economy and pondered what the Obama administration might do to help it. Analysts said the market is already anxious about who Obama selects as the next Treasury Secretary, as well as who he picks for other Cabinet positions

Analysts said investors were also uneasy in advance of the Labor Department's October employment report, to be issued on Friday. Economists on average expect a 200,000 drop in payrolls, according to Thomson/IFR. Employers have been slashing jobs after a freeze-up in the credit markets crippled many companies' ability to get financing.

Late-day selling by hedge funds helped deepen the market's losses during the last hour. More selling by the funds is expected to weigh on the market ahead of a Nov. 15 cutoff for shareholders to notify fund managers of their intent to cash out investments before year-end.

According to preliminary calculations, the Dow fell 486.01, or 5.05 percent, to 9,139.27.

The S&P 500 index fell 52.98, or 5.27 percent, to 952.77. Through the six sessions that ended Tuesday, the index, the one most closely watched by market professionals, rose 18.3 percent.

The Nasdaq composite index fell 98.48, or 5.53 percent, to 1,681.64, while the Russell 2000 index of smaller companies fell 31.33, or 5.74 percent, to 514.64.