The stock market took a major beating today after the election of Democrat Barack Obama and Democratic gains in both the House and Senate. The Dow Jones industrial average losing nearly 500 points and markets in Europe also saw drops.
Initially, stocks fell as investors cashed in from a week-long rise in share prices. But then in the afternoon the sell-off gained speed as traders started to question exactly what an Obama presidency would mean for American businesses.
Investors also shifted their focus back to the economy in anticipation of Friday's job report where the government is expected to announce roughly 200,000 in lost jobs in October.
With the closely watched presidential election over, the business world is now bracing itself for the new reality of a Democratic-controlled Washington. That likely means stronger oversight and regulation of the financial sector, a tax structure that is less friendly to companies, increased spending on entitlement programs and more labor-friendly policies.
The Dow started the day down about 100 points, fell 200 points by noon and ended the day down 486.01 points or 5 percent. The Nasdaq lost 5.5 percent and the S&P 500 lost 5.3 percent.
In Europe, Great Britain's FTSE 100 fell 2.3 percent, the German DAX lost 2.1 percent and France's main index was down 2 percent. Asian markets were up 2 percent to 4 percent, following a strong rally on Wall Street Tuesday.
The Dow had ended Election Day up 305 points, or 3.3 percent. It was the best showing for the market on an Election Day ever. The previous record was a 1.2 percent gain in 1984 when Ronald Reagan beat Walter Mondale. Before 1980, the market was closed on Election Day.
Talk on Wall Street switched this morning from who would win the election to how will Obama shape his administration. Investors are closely watching who the president-elect will pick as his treasury secretary.
The likely candidates include former Treasury Secretary Lawrence Summers; Tim Geithner, the president of the New York Federal Reserve; and a distant third possible pick of former Federal Reserve System chairman Paul Volcker. New Jersey Gov. Jon Corzine's name has also been floated as a possible pick.
The former Goldman Sachs CEO said on CNBC this morning, "I'm never going to say never to anything. I like what I'm doing. I have not had any conversations with anybody about this job."
Wall Street had a lot invested in this election.
The federal government has wide powers to regulate business in America -- everything from the way stocks, bonds and other investments are traded to the way companies and their employees are taxed.
And the government's role has become much more active as the financial crisis has spread. The new president is going to have to administer the $700 billion bailout, weigh a second economic stimulus package and look at what new regulations and oversight should or should not be imposed on Wall Street.
Using history to look ahead, it appears that a Democratic victory will be good for Wall Street. The S&P 500 has risen more in the past under Democratic presidencies than Republican ones.
From the time a Democrat has been elected until the time a new president has been chosen, the S&P 500 has increased by a median of 62 percent, according to Bloomberg. For Republicans, the increase was 28 percent.