Wall Street sinks after election as "fiscal cliff" eyed

NEW YORK (Reuters) - The Dow industrials lost more than 300 points in a sell-off on Wednesday that drove all major stock indexes down over 2 percent in the wake of the presidential election as investors' focus shifted to the looming "fiscal cliff" debate and Europe's economic troubles. The Standard & Poor's 500 Index posted its biggest daily percentage drop since June, with all 10 S&P sectors solidly lower and about 80 percent of stocks on both the New York Stock Exchange and the Nasdaq ending in negative territory. Both the Dow and the S&P 500 closed at their lowest levels since early August. Financial stocks and energy shares, two sectors that could face increased regulation after President Barack Obama's re-election, were the weakest on the day. The S&P financial index (.GSPF) lost 3.5 percent, while the S&P energy index (REU:^GSPEI) fell 3.1 percent. An S&P index of technology shares (.GSPT) slid 2.8 percent as the stock of Apple Inc (AAPL) entered bear market territory. Obama's victory had been anticipated, though many polls indicated a close race between the president and Mitt Romney, his Republican challenger, going into election day. The election was considered a major source of uncertainty for the market, but now the focus turns to the fiscal cliff, with investors worrying that if no deal is reached over some $600 billion in spending cuts and tax increases due to kick in early next year, it could derail the economic recovery. The Republican Party retained control of the U.S. House of Representatives, while the Senate remained under Democratic control. David Joy, chief market strategist at Ameriprise Financial in Boston, said this kind of divided government was disappointing "since that configuration has resulted in gridlock and there's no clear path towards unlocking that. "It holds implications for how quickly we resolve the fiscal cliff issue, or whether it gets resolved at all," said Joy, who helps oversee $571 billion in assets. The market's losses were broad, with pessimism exacerbated by overseas concerns after the European Commission said the region would barely grow next year, dashing hopes for improvement in the short term. Still, some viewed the day's slide as a buying opportunity, saying it was unlikely that no deal would be reached on the fiscal cliff and arguing that Europe's troubles were already priced into markets. "There's no question that Europe is lagging the rest of the developed and emerging world, but stocks will find a base soon, when investors start seeing through some of the smoke over the region and cliff," said Richard Weiss, who helps oversee about $120 billion in assets as a senior money manager at American Century Investments in Mountain View, California. The Dow Jones industrial average (^DJI) slid 312.95 points, or 2.36 percent, to close at 12,932.73. The Standard & Poor's 500 Index (^GSPC) fell 33.86 points, or 2.37 percent, to 1,394.53. The Nasdaq Composite Index (^IXIC) lost 74.64 points, or 2.48 percent, to close at 2,937.29. The S&P 500 closed below the key 1,400 level for the first time since August 30, while the Dow ended under 13,000 for the first time since August 2. About 7.81 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, slightly below last year's daily average of 7.84 billion, though Wednesday's volume did surpass that of many recent sessions. Contributing to the Nasdaq's decline, Apple shares fell 3.8 percent to $558, off 20.8 percent from an all-time intraday high of $705.07 set on September 21. That slump puts the stock of the world's most valuable publicly traded company in bear market territory. Despite Wednesday's sell-off, all three major U.S. stock indexes were still up for the year. At Wednesday's close, the Dow was up 5.9 percent for 2012 so far, while the S&P 500 was up 10.9 percent and the Nasdaq was up 12.8 percent. Wednesday's plunge was a reversal from Tuesday's rally when voting was under way. Defense and energy shares were among the market leaders that day, causing speculation that some investors were betting on a Romney win. On Wednesday, an index of defense shares (.DFX) fell 2.9 percent, its biggest one-day drop in a year. Shares of United Technologies (UTX) dropped 2.9 percent to $77.68 while Lockheed Martin (LMT) sank 3.9 percent to $91.15. Energy shares fell as investors bet that the industry may see increased regulation in Obama's second term, with less access to federal lands and water. Crude oil shed more than 4 percent while an index of coal companies (.DJUSCL) plunged 8.8 percent. Coal firms Peabody Energy (BTU) lost 9.6 percent to $26.24 and Arch Coal (ACI) sank 12.5 percent to $7.58. Among financials, JPMorgan Chase & Co (JPM) fell 5.6 percent to $40.46 and Goldman Sachs (GS) dropped 6.6 percent to $117.98. "The notion that you may have gotten a respite on the financial services side (with regulation) if Romney had been elected is obviously being unwound," said Mike Ryan, chief investment strategist at UBS Wealth Management Americas in New York. Healthcare stocks were mixed as President Obama's re-election rules out the possibility of a wholesale repeal of his healthcare reform law, though questions remain as to what parts of the domestic policy will be implemented. The S&P health care index (REU:^GSPAI) shed 1.9 percent. In contrast, Tenet Healthcare (THC) was the S&P 500's biggest percentage gainer, up 9.6 percent at $27.34. In 2008, stocks also rallied on election day, but then fell by the largest margin on record for a day following the vote, with each of the three major U.S. stock indexes posting losses ranging from 5 percent to 5.5 percent. After the bell, both Qualcomm Inc (QCOM) and Whole Foods Market Inc (WFM) reported results. Qualcom's revenue beat expectations, sending shares up 8 percent to $62.75 in extended trading, while Whole Foods dropped 3.3 percent to $92.75 after the bell. In the regular session, Qualcomm slid 3.7 percent to close at $58.12, while Whole Foods dropped 2.1 percent to $95.93.

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Obama Wins 2012 Election: Why Your Taxes Are Going Up

When President Obama and the new Congress begin to tackle important legislation and federal policy in January, one of the key issues will be how to reform America's byzantine tax code. Obama campaigned on a platform to raise taxes on the wealthiest Americans, declaring that millionaires and billionaires need to "pay their fair share." The president proposed the highly controversial "Buffett Rule," which would make sure those individuals earning more than $1 million a year would pay at least 30% of their income in federal taxes. Related: Do the Rich Have a Moral Obligation to Pay Higher Taxes? Gov. Jerry Brown Says 'Yes' The top individual tax rate is currently 35% but few U.S. households and individuals actually pay that much; various tax deductions and loopholes reduce one's tax burden. According to the Obama campaign, the richest 400 taxpayers in 2008 (who each made more than $110 million that year) paid an average income tax rate of just 18%. In 2009 over 20,000 U.S. households with more than $1 million in income paid a federal tax rate of less than 15%. Obama has vowed to raise the top income tax rate for individuals to 39.6% and let the Bush-era tax breaks end for the highest income earners. The majority of Americans — those who are lower to middle class — could also see a 2% tax increase if Congress allows the temporary payroll tax holiday to expire at the end of the year. Related: Here's Why Your Taxes Are Going Up 2% Next Year: Just Explain It Nearly half of voters support raising taxes on incomes over $250,000, according to Tuesday night's exit polls. Len Burman, a professor of public affairs at Syracuse University and a co-founder of the bipartisan Tax Policy Center, believes higher tax rates play just a small role in resolving the nation's budget woes. "In the long term [Obama] is going to need to raise taxes on more than just the rich," Burman says in an interview with The Daily Ticker. "The budget problem isn't going to be solved without broader-based tax increases, preferably done in the context of tax reform and also serious entitlement reform. We're not going to be able to solve this on the tax side alone." Burman, who recently co-wrote the new book "Taxes in America: What Everyone Needs to Know," says tax rates do not need to be raised for any income group if Congress and the White House would agree on one simple change: raising the capital gains rate, i.e. the profits from the sale of an investment. Assets, such as stocks, art or real estate, that are held for at least a year are currently taxed at a special 15% rate; Obama wants to raise that to 20%. "The problem with a low tax rate on capital gains is not that it allows Mitt Romney and Warren Buffett to pay very low taxes but that it creates this huge opportunity for tax sheltering," he notes. "There's a whole industry that's devoted to coming up with these schemes. [Raising capital gains rates] could make the tax system more progressive and allow for lower tax rates" and a reduction in the deficit Burman says. Obama's tax proposal also targets the Alternative Minimum Tax, the Estate Tax and as well as many personal tax credits and itemized deductions. Obama would make permanent the 2007 AMT patch and index it for inflation. He would raise the estate tax to 45% from 35% on estates worth more than $3.5 million. He would lower the corporate tax rate to 28% from 35% and provide a refundable $3,000 credit per added employee for companies that expand their workforce. He would tax carried interest as ordinary income. Related: Corporate Tax Loopholes=Corporate Socialism: Pulitzer Prize Winner David Cay Johnston A divided Congress refused to compromise with Obama during his first term and could very well dismiss the president's tax reforms for the next four years. Republicans are loathe to raise taxes by even a penny and Obama has said he would veto any budget bills that did not include tax increases. Neither party wants to raise taxes in a weak economy. But the options available for reducing the deficit and generating new revenue are few and far between.

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Has Obama Been Good for Millionaires?

The question of whether Americans are better off than they were four years ago depends, of course, on the American. For the 12 million unemployed, the answer is most certainly no. But for many of America's millionaires, the answer may be more affirmative. A new study from WealthInsight, the London-based wealth-research and data firm (and yes, they are non-partisan), showed that the United States added 1.1 million millionaires between Jan. 1, 2009 and the end of 2011, the latest period measured. There were 5.1 million millionaires in America at the end of 2011, compared with around 4 million at the end of 2008. That works out to more than 1,000 millionaires a day under the Obama administration. (They defined millionaires as people with total net worth of $1 million or more, excluding primary residence). (Read more: Rich Will Spend More Under Romney: Poll) "It's true that Obama has been good for millionaires, at least in absolute terms," said Andrew Amoils, analyst at WealthInsight. "He certainly hasn't been bad for millionaires." Amoils said that quantitative easing and financial bailouts especially helped the finance sector, which accounts for the largest share of millionaires. It also helped that markets recovered in 2009. The timeframe is worth noting. Measured against the 2007 peak, when 5.27 million Americans had a net worth of at least $1 million, the nation lost 165,360 millionaires. Their combined wealth is down six percent, to $18.8 trillion from a peak of more than $20 trillion in 2007. We don't know how 2012 will turn out, though if stock markets continue to strengthen, the millionaire count for 2012 is likely to increase. Wealth Insight says the number of millionaires in America will grow to more than six million by 2016, and their combined fortunes will jump 25 percent over the same period. (Read more: Millionaires Give Nine Percent of Income to Charity) Where did all the millionaires come from between 2008 and 2011? Mainly from retail, tech and finance -- and in both blue and red states. Of the sectors adding the largest number of people worth $30 million or more, the retail, fashion, and luxury goods sector ranked first. That was followed by energy and utilities, then tech, telecoms and finance. Transportation and construction saw the biggest drops. The number of people worth $30 million or more grew 26 percent in Connecticut since 2008, 20 percent in Kansas, 12 percent in Michigan, showing that the wealth creation was nationwide.

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Disney buying Lucasfilm for $4.05 billion

LOS ANGELES (AP) — Disney is paying $4.05 billion to buy Lucasfilm Ltd., the production company behind "Star Wars," from its chairman and founder, George Lucas. It's also making a seventh movie in the "Star Wars" series called "Episode 7," set for release in 2015, with plans to follow it with Episodes 8 and 9 and then one new movie every two or three years. The Walt Disney Co. announced the blockbuster agreement to make the purchase in cash and stock Tuesday. The deal includes Lucasfilm's prized high-tech production companies, Industrial Light & Magic and Skywalker Sound, as well as rights to the "Indiana Jones" franchise. Disney CEO Bob Iger said in a statement that the acquisition is a great fit and will help preserve and grow the "Star Wars" franchise. "The last 'Star Wars' movie release was 2005's 'Revenge of the Sith' — and we believe there's substantial pent-up demand," Iger said. Kathleen Kennedy, the current co-chairman of Lucasfilm, will become the division's president and report to Walt Disney Studios Chairman Alan Horn. Lucas will be creative consultant on new "Star Wars" films. Lucas said in a statement, "It's now time for me to pass 'Star Wars' on to a new generation of filmmakers." The deal brings Lucasfilm under the Disney banner with other brands including Pixar, Marvel, ESPN and ABC, all companies that Disney has acquired over the years. A former weatherman who rose through the ranks of ABC, Iger has orchestrated some of the company's biggest acquisitions, including the $7.4 billion purchase of animated movie studio Pixar in 2006 and the $4.2 billion acquisition of comic book giant Marvel in 2009. Disney shares were not trading with stock markets closed due to the impact of Superstorm Sandy in New York.

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US economic growth improves to 2 pct. rate in Q3

WASHINGTON (AP) -- The U.S. economy expanded at a slightly faster 2 percent annual rate from July through September, buoyed by an uptick in consumer spending and a burst of government spending. Growth improved from the 1.3 percent rate in the April-June quarter, the Commerce Department said Friday. The pickup in growth may help President Barack Obama's message that the economy is improving. Still, growth remains too weak to rapidly boost hiring. And the 1.74 percent rate for 2012 so far trails last year's 1.8 percent growth, a point GOP nominee Mitt Romney will emphasize. The report is the last snapshot of economic growth before Americans choose a president in 11 days. The economy improved because consumer spending rose 2 percent in the July-September quarter, up from 1.5 percent in the second quarter. Spending on homebuilding and renovations increased more than 14 percent. And federal government spending expanded sharply on the largest increase in defense spending in more than three years. Growth was held back by the first drop in exports in more than three years and flat business investment in equipment and software. The economy was also slowed by the severe drought this summer in the Midwest. That sharply cut agriculture stockpiles and reduced growth by nearly a half-point. The government's report covers gross domestic product. GDP measures the nation's total output of goods and services — from restaurant meals and haircuts to airplanes, appliances and highways. The first of three estimates of growth for the July-September quarter sketched a picture that's been familiar all year: The economy is growing at a tepid rate, slowed by high unemployment and corporate anxiety over an unresolved budget crisis and a slowing global economy. While growth remains modest, the factors supporting the economy have changed. Exports and business investment drove growth for most of the recovery, but are now fading. Meanwhile, consumer spending has ticked up and housing is adding to growth after a six-year slump. Consumer spending drives nearly 70 percent of economic activity. Businesses have grown more cautious since spring, in part because customer demand has remained modest and exports have declined as the global economy has slowed. Many companies worry that their overseas sales could dampen further if recession spreads throughout Europe and growth slows further in China, India and other developing countries. Businesses also fear the tax increases and government spending cuts that will kick in next year if Congress doesn't reach a budget deal. Since the recovery from the Great Recession began in June 2009, the U.S. economy has grown at the slowest rate of any recovery in the post-World War II period. And economists think growth will remain sluggish at least through the first half of 2013. Some analysts believe the economy will start to pick up in the second half of next year.

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