Wall Street greeted a second Obama term the way it greeted the first.
Investors dumped stocks Wednesday in one of the sharpest sell-offs of the year. With the election only hours behind them, they focused on big problems ahead in Washington and across the Atlantic Ocean.
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 the rest of 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 remained down 279 points with a half-hour of trading to go.
"It does look ugly," said Robert Pavlik, chief market strategist at Banyan Partners LLC. He said it was hard to untangle the impact of Europe-related selling from nerves about the nation's fiscal uncertainty.
"It's a combination of all that, quite honestly," Pavlik said.
It was the worst day for the market in a year, but not the worst day after an election. That distinction belongs to 2008, when Barack Obama was elected at the depths of the financial crisis. The Dow fell 486 points the next day.
This time, energy companies and bank stocks took some of the biggest losses. Both industries would have faced lighter and less costly regulation if Mitt Romney had won the election.
Stocks seen as benefiting from Obama's decisive re-election rose. They included hospitals, free of the threat that a Romney administration would have sought to roll back Obama's health care law.
The frantic selling recalled the days after Obama's first victory, as the crisis raged and stocks spiraled downward. The Dow plunged more than 400 points on each of the two trading days after Obama's election on Nov. 4, 2008.
The average hit bottom at 6,547 in March 2009, less than two months after Obama took office. Then it doubled as the crisis eased and a fragile economic recovery took root after the next three-plus years.
Until recently, some analysts were betting on when the market might hit an all-time high.
Of course, the market today is far less precarious than it was in 2008. The financial system has stabilized. Europe appears to be serious about tackling its debt crisis, despite frequent setbacks.
The housing market appears to be coming back, and the economy has added jobs for more than two and a half years.
On the day after the 28 other presidential elections since 1900, the stock market has gone up 13 times and down 15 times, according to research by Bespoke Investment Group, a market research company.
The best day-after performance was in 1900, another re-election. The Dow jumped more than 3 percent on the day after William McKinley won a second term, according to Bespoke.
With the 2012 election over, traders turned to an increasingly sickly European 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 more than $4 per barrel to below $85.
U.S. stock futures were higher overnight after Obama cruised to victory. They turned sharply lower after the European forecasts and discouraging comments from Mario Draghi, president of the European Central Bank.
Now that the U.S. election has been resolved, it's natural for traders to focus on Europe's problems, said Peter Tchir, who manages the hedge fund TF Market Advisors.
What they're tuning in to, he said, is the failure of a major European summit last week and minimal progress on the issues that are holding the region back.
"People can only digest one or two stories at a time, and people had put Europe on the back burner" before the election, he said.
Obama's win followed a costly campaign that blanketed markets with uncertainty about possible changes to tax rates, government spending and other issues seen as crucial to the prospects of some industries and the broader economy.
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.
"Obama's re-election does not change the bigger economic or fiscal picture," Paul Ashworth of Capital Economics Ashworth, an economic research company, said in a note to clients.
Fitch Ratings offered a warning about the fiscal perils facing the U.S. If Obama does not quickly forge agreement with Congress to avert the fiscal cliff, the credit rating agency said Wednesday, it may strip the U.S. of its perfect 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.
Tobias Levkovich, a financial analyst at Citi Research, told clients Wednesday that a compromise on taxes and spending was likely in mid- to late January, but that stocks will probably fall in the meantime.
A deal early next year is much more likely "once the political class begins to negotiate realistically and as the consequences ... are too costly for either party to ignore," he wrote.
European markets closed sharply lower, with benchmark indexes in France and Germany losing 2 percent. Italy lost 2.5 percent; Spain lost 2.3 percent.
As traders streamed into lower-risk investments, the yield on the 10-year Treasury note plunged to 1.63 percent from 1.75 percent late Tuesday. A bond's yield declines as demand for it increases.
Most industries reacted to the election much as analysts had expected.
Big, publicly traded hospital companies soared because of expectations that they will gain business under the health care law, known as ObamaCare. HCA Holdings leapt 9 percent, Tenet Healthcare 10 percent, Community Health Systems 6 percent and Universal Health Services 5 percent.
Not all hospital companies are expected to benefit. Many serve patients who will be covered by Medicaid plans that generally do not cover the full cost of care provided by hospitals.
Health insurance stocks sank, defying many analysts' expectations. ObamaCare will expand coverage of the uninsured in 2014, giving insurers millions of new customers. But the overhaul also imposes fees and restrictions on the companies, potentially threatening their profitability. Humana slid 7 percent, UnitedHealth Group 4 percent, Aetna 3 percent and Wellpoint 5 percent.
With Obama seeking to restrain the growth of military spending, defense companies could struggle to win government contracts. Their stocks fell sharply: Lockheed Martin lost 4 percent, Northrop Grumman 4 percent and General Dynamics 3 percent.
Among the 10 industry groups in the S&P 500 index, financial stocks and energy companies fell the most.
Banks figure to face tougher regulation in a second Obama term than they would have under Romney. JPMorgan Chase and Citigroup fell 5 percent, Bank of America and Goldman Sachs 6 percent and Morgan Stanley 8 percent.
The biggest losers were coal companies, which had hoped that a Romney administration would loosen mine safety and pollution rules that make it more costly for them to operate. Peabody Energy dived 10 percent, Consol Energy 6 percent, Alpha Natural Resources 12 percent and Arch Coal 14 percent.
Oil companies fell less steeply.
Trading also reflected the outcome of ballot measures decided in Tuesday's election. After two states approved the recreational use of marijuana for the first time, Medical Marijuana Inc., a company too small to be listed on major exchanges, surged 17 percent.
Other notable moves included Apple, the world's most valuable company. It fell 4 percent to $558.62 and has dropped 20 percent from its all-time high of $705.07, reached Sept. 21.
AP Business Writers Christina Rexrode and Steve Rothwell in New York, Tom Murphy in Indianapolis, Linda Johnson in Trenton, N.J. and Marcy Gordon in Washington contributed to this report.
Daniel Wagner can be reached at www.twitter.com/wagnerreports.