Market Recap: Worst Day of 2012 for Stocks

Markets got slaughtered today:

▼ Dow: -2.36 percent

▼ Nasdaq: -2.48 percent

▼ S&P: -2.37 percent

Precious metals:

▲ Gold: +0.11 percent to $1,714.75 an ounce

▼ Silver: -0.58 percent to settle at $31.73

Commodities:

▼ Oil: -4.15 percent

Markets were down because:

The Dow Jones industrial average fell 2.4 percent, giving it its fifth worst one-day drop following a U.S. presidential election. The biggest, in 2008, came in the midst of the financial crisis on the day after President Barack Obama won his first term.

Investors dumped stocks Wednesday in the sharpest sell-off of the year. Frantic selling recalled the days after Obama's first victory, as the financial crisis raged and stocks spiraled downward.

Four years later, American voters returned a divided government to power and left investors fretting about a package of tax increases and government spending cuts that could stall the economic recovery unless Congress acts to stop it by Jan. 1.

In Europe, leaders warned that unemployment could remain high for years, and cut their forecasts for economic growth for this year and 2013. The head of the European Central Bank said not even powerhouse Germany is immune.

The Dow Jones industrial average plummeted as much as 369 points, or 2.8 percent, in the first two hours of trading. It recovered steadily in the afternoon, but slid into the close and ended down 313, its biggest point drop since this time last year.

Energy companies and bank stocks took some of the biggest losses. Both industries would have faced lighter, less costly regulation if Mitt Romney had won the election.

With the 2012 election over, traders turned to Europe's increasingly sickly economy, dragged down by a debt crisis for more than three years. The 27-country European Union said unemployment there could remain high for years.

The European Commission, the executive arm of the EU, said that it expects the region's economic output to shrink 0.3 percent this year. In the spring, the group predicted no change.

For next year, the commission predicted 0.4 percent growth, barely above recession territory. It predicted 1.3 percent last spring.

Renewed focus on European economic problems also pushed the price of oil down $4.27 per barrel, its biggest decline of the year, to finish at $84.44, the lowest since July 10.

The Dow closed down 312.95 points, or 2.4 percent, at 12,932.73 - its first close below 13,000 since Aug. 2.

The Standard & Poor's 500 index fell 33.86 points, or 2.4 percent, to 1,394. That was the broader index's first close below 1,400 since Aug. 30.

The Nasdaq composite index lost 74.64 points, or 2.5 percent, to 2.937.29.

As jitters about the election subsided, traders confronted an ugly reality: The so-called fiscal cliff, which will impose automatic tax increases and deep cuts to government spending at the end of the year unless the president and Congress reach a deal.

That's no easy task for a deadlocked government whose overall composition has barely changed - a Democratic president and Senate and a Republican House.

If Congress and the White House don't reach a deal, the spending cuts and tax increases could total $800 billion next year. Some economists say that could push the economy back into recession.

Fitch Ratings offered a warning Wednesday about the perils facing the U.S. If Obama does not quickly forge agreement with Congress to avert the fiscal cliff, the credit rating agency said, it may strip the U.S. of its sterling AAA credit rating.

The government's failure to come up with a plan to reduce the deficit led Standard & Poor's to cut its rating of long-term U.S. Treasury securities last year from a sterling AAA to AA+. It was the first-ever downgrade of U.S. government debt.

The Associated Press contributed to this report.