Investors reacted gloomily today to news of the re-election of U.S. President Barack Obama, maintaining the status quo of a gridlocked U.S. government with the House and Senate divided along partisan lines.
The Dow Jones Industrial Average sold off heavily Wednesday morning, shedding 200 points to trade at 13,041 shortly after North American stock markets opened at 9:30 eastern time.
The Toronto Stock Exchange was also lower, with the benchmark S&P/TSX composite index down 92 points to 12,268.
Asia and European stocks took a similar path, with Japan's benchmark Nikkei losing 10 points to 8,950 and European benchmarks such as Paris's CAC-40 and London's FTSE both moved lower.
'He's got a long to-do list and I wish him the best on behalf of our economy.'—Janet Ecker, former Ontario finance minister
Francis Lun, managing director of Lyncean Holdings in Hong Kong, said the results mean an extension of the status quo. Stability is normally welcomed by investors, but not when the situation being preserved is an American government paralyzed by infighting over economic issues.
"Nothing will change. We will have ultra-low interest rates, a $1-trillion deficit and quantitative easing," Lun said. "Bernanke will keep his job as Fed chairman."
Others were more upbeat about Obama's win over Republican rival Mitt Romney.
"I continue to believe that an Obama victory is less damaging to the U.S. economy than a Romney victory might have been," Scotiabank economist Derek Holt said. "That's not a ringing endorsement of Obama's policies, but an Obama victory averts the risk that Romney might have started a trade war with China."
'Fiscal cliff' looms
One of the most pressing issues facing the U.S. is the so-called fiscal cliff, a combination of higher taxes and government spending cuts that automatically takes effect unless Congress acts by Jan. 1. Against the backdrop of yet another debate over America nearing its debt ceiling, that's unlikely to happen.
Economists have warned that if this fiscal cliff is not avoided, the adverse effects on the economy could push the country back into recession.
"The fiscal cliff is — simply put — the biggest tax increase [and] spending cut in history," said Leon LaBrecque, strategist at investment firm LJPR. "It's a colossal mess."
Beyond the fiscal cliff, a number of U.S. economic policies are of keen interest to Canada, due to the two countries' close trading relationship, not the least of which is the fate of the Keystone XL pipeline that Calgary-based TransCanada is trying to build to ship Canadian crude to U.S. refineries on the Gulf coast.
Obama managed to delay the controversial decision of whether to approve the project into 2013, limiting its ability to become an election issue.
Even beyond Keystone, Canada's business community is keeping a close watch on economic developments south of the border.
Regulation concerns
"The fiscal cliff which everyone was talking about is coming up like a freight train in January," former Ontario finance minister Janet Ecker, now president of the Toronto Financial Services Alliance, told CBC News in an interview Wednesday. "That's the big question for Obama."
Ecker said Canada's financial services industry is also waiting to see what moves Obama might be planning in terms of regulation for the industry during his second term.
"Hopefully you're going to see him reaching out to the business community," Ecker said. "Uncertainty has caused too many CEOs to just not make decisions about new investment and new expansion because they didn't know what the rules were going to be.
"There's an accumulation of regulatory burden that might not be what you need," Ecker said. "He's got a long to-do list and I wish him the best on behalf of our economy."
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