Stocks Fall as Economy Returns to the Fore

News at a Glance

• Democrats Win: Obama, legislators turn D.C. deep blue.
• Equities Fall: Major indexes begin new era with a selloff.
• Job Losses Up: ADP report shows 157k private payrolls cut.
• Services Sector Shrinks: ISM index falls below 50.0.

The Lowdown

So much for the Obama bump.

Sen. Barack Obama's (D, Ill.) historic presidential victory did little to inspire traders the day after his election.

Stocks plummeted as traders turned defensive on more disappointing economic data and the promise of sweeping changes to the business environment. Each of the major indexes dropped more than 5%. The Dow Jones Industrial Average lost 486 points to end the session at 9139. The Nasdaq fell 98 to 1682, and the S&P 500 gave up 53 at 953.

Heading into last night, analysts said an Obama victory had been largely priced into the market already. However, potential changes in the tax code and the regulatory environment may have left traders more susceptible to weak economic roadsigns.

The day's data served only to demonstrate the growing challenges facing the 44th President. The latest ADP Employment Report showed private payrolls fell in October by more than half as much as economists had expected. The broader federal jobs report is due out on Friday.

The services sector also looked anemic after the ISM's non-manufacturing index came in below consensus and suggested business was contracting.

Meanwhile, the retail sector got a weak prognosis. Consumers cut their spending habits dramatically in October, according to SpendingPulse, the retail data service of MasterCard (MA). "The numbers for October are very negative across the board," said Michael McNamara, vice president at MasterCard Advisors, according to Reuters. Purchases of more than $1,000 were hit particularly hard.

Online retailers also expect to see declining revenues in the near-term, bracing for a slowdown in holiday sales, according to a new survey released by the National Retail Federation, The Wall Street Journal reported.

World markets were mixed after Obama's victory. In Asia, Japan's Nikkei rose 4.5%, while Hong Kong's Hang Seng picked up 3.2%. In Europe, the FTSE dipped 2.3%.

On the Nymex, crude futures dipped as traders weighed Obama's promises of investments in alternative energy sources. Shortly before 4 p.m., oil had slipped $4.30 on the day to $65.33 a barrel.

Corporate News

• Time Warner (TWX) posted a slight dip in third-quarter net income but still topped analysts' estimates. Losses at the firm's AOL division were partially offset by gains in its cable business. The firm eared $1.07 billion, or 30 cents a share, down from $1.09 billion, or 29 cents a share, in the year-ago period. Excluding one-time charges, Time Warner earned 31 cents a share, or 4 cents more than analysts had expected.
• Ambac (ABK) reported a $2.4 billion third-quarter loss after the value of the bonds it insures plummeted sharply. The firm lost $8.45 a share, down from a loss of $3.53 a share in the year-ago period.
• Sara Lee (SLE) posted better-than-expected first-quarter results after the firm benefited from a weaker dollar and a growing national appetite for baked goods. Sara Lee earned $230 million, or 32 cents a share, up from $200 million, or 28 cents a share, in the year-ago period. That was better than Street estimates of 23 cents a share, however the firm lowered its outlook for the current quarter on a rebound in the dollar.

The Economy

• Private payrolls fell by 157,000 in October, down from a revised September loss of 26,000, according to the latest ADP Employment data. Economists had expected private payrolls to shrink by 100,000 last month. REPORT
• The Institute for Supply Management's Purchasing Manager's Index for the services sector fell to an October reading of 44.4, down from 50.2 in September. Economists had predicted an October reading of 47.0. REPORT
• Crude inventories were unchanged last week and remained in the upper half of the average range for this point in the year, the Energy Department said. REPORT

ReadMe

• The Wall Street Journal on business in the Obama administration: Some firms are preparing for tougher business conditions under what they predict will be tighter regulations and a more union-friendly atmosphere. STORY
• DealBook on Sen. Charles Schumer (D, N.Y.): The member of the Senate finance and banking committees offers some advice to the 44th President. STORY
• BusinessWeek on Obama's victory: Jack and Suzy Welch offer three business tips gleaned from how the next president ran his campaign. STORY

WatchMe

• Bloomberg on the business environment: Senate Majority Leader Harry Reid (D, Nev.) discusses the outlook for business in a heavily Democratic Washington. VIDEO
• CNBC on Obama: The network's top pundits attempt to handicap his administration's ability to bridge the gap between the parties. VIDEO
• Indecision '08: John Stewart and Stephen Colbert deliver election results and media satire. COM, 8 p.m.