Why the Dow Is Plunging

The Dow Jones Industrial Average (INDEX: ^DJI) is taking a beating today. As of 12:55 p.m. EST, the index is down 298 points, or 2.25%. Now that we know Barack Obama will remain the president, the Senate will remain controlled by the Democratic Party, and the House of Representative will remain controlled by the Republican Party, the big looming question is: Will the parties manage to work together?

Many feel that the government has been in gridlock over the past few years, with neither political party willing to compromise on key issues, and now that we know the election results, the balance of power looks similar to what we have seen over the past few years. This may have been what caused ratings agency Fitch to announce this morning that the U.S. will lose its "AAA" credit rating if the three groups do not come together on an agreement pertaining to the fiscal cliff.

Most economists believe that the end of the Bush tax cuts and automatic spending cuts aimed to reduce the federal budget deficit -- both of which are scheduled to happen on Jan. 1, 2013 -- would send the country into another recession. In addition, Treasury officials have said the government will hit its $16.4 trillion debt limit at the end of the year, and if steps are not taken to balance the budget or raise the debt ceiling, the nation will face a possible default in 2013.


Every single Dow component is trading lower today. Bank of America (NYS: BAC) and JPMorgan Chase (NYS: JPM) are two of the biggest losers today, down 5.8% and 4.6%, respectively. Not only would a lowered U.S. credit rating hurt the financial industry, but many believe that tougher financial regulation is coming down the political pipeline.

UnitedHealth Group (NYS: UNH) is the other big loser of the day, with shares down 4.2%. Many investors initially believed the Affordable Healthcare Act would help the health insurance industry, but judging by the price movement today, there are some who disagree. Working to comply with the new law's requirements may initially hurt the company, and today's move lower could be just the start of a long downward slide.

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The article Why the Dow Is Plunging originally appeared on Fool.com.

Matt Thalman owns shares of Bank of America and JPMorgan Chase. The Motley Fool owns shares of Bank of America, JPMorgan Chase & Co., and UnitedHealth Group. Motley Fool newsletter services recommend UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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s_smith112

The Dow is falling because businesses are scared to death - Obama and his supporters get to continue to convert the USA to socialism. Sadly, more people in the USA agree with him and its downhill from here.

"The American Republic will endure, until politicians realize they can bribe the people with their own money."
- Alexis de Tocqueville

November 07 2012 at 2:20 PM Report abuse rate up rate down Reply
ncbay

This article is worthless.

November 07 2012 at 1:49 PM Report abuse rate up rate down Reply
Pilchers

It's a 16.4 trillion dollar deficit limit, not a debt limit.

November 07 2012 at 1:38 PM Report abuse rate up rate down Reply