Chicago Defender

Election Over, US Stocks Dip on Challenges to Come

The election behind them, U.S. investors dumped stocks Wednesday and turned their focus to a world of problems — economically harmful tax increases and spending cuts at home and a deepening recession in Europe.

The Dow Jones industrial average plunged as much as 245 points in the first hour of trading, and the Standard & Poor's 500 index fell as much as 27, or 1.6 percent. Energy companies and bank stocks took big losses.

Stocks seen as benefiting from President Barack Obama's decisive re-election rose. They included hospitals, free of the threat that a President Mitt Romney would have sought to roll back Obama's health care law, and renewable-energy companies.

With the campaign resolved, traders' attention returned to an increasingly ill 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.

The EU also predicted a larger decline for the 17 nations that use the euro currency: 0.4 percent this year, slightly worse than a previous estimate of a 0.3 percent decline.

Mario Draghi, president of the European Central Bank, also warned that economic powerhouse Germany is no longer insulated from the region's troubles.

In the U.S., stock futures were higher overnight, after Obama cruised to victory. They turned sharply lower after the European forecasts.

Obama's win came after 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 U.S. economy.

As those concerns 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 can 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. Economists have warned that could be enough to 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.

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.

Just after 10:15 a.m. EST, the Dow was down 240 points at 13,003. The S&P was down 26 points at 1,401. The Nasdaq composite index was off 57 points at 2,954.

As traders streamed into lower-risk investments, the yield on the 10-year Treasury note plunged to 1.64 percent from 1.75 percent late Tuesday. A bond's yield declines as demand for it increases.

Broad industries reacted to the election much as analysts had expected.

Hospital companies soared because of expectations that they will gain business under the health care law, known as ObamaCare. HCA Holdings and Community Health Systems each leapt 6 percent, and Universal Health Services and Tenet Healthcare 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 3 percent, Northrop Grumman 3 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 fell 3 percent, Citigroup 3 percent, Bank of America 4 percent and Goldman Sachs Group 4 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 7 percent, Consol Energy 4 percent, Alpha Natural Resources 9 percent and Arch Coal 10 percent.

Oil companies fell less steeply.

Alternative energy companies, especially solar manufacturers, rose on expectations that they will continue to enjoy generous subsidies. First Solar and Yingli Green Energy Holding each rose 2 percent.

Chicagoans Will Spend More this Holiday

CHICAGO (AP) — Chicago area retailers will be a little bit busier this holiday season but area residents may scale back on decorations and parties.

That's what the Chicago Tribune (http://trib.in/SG5QBG ) reports that the consulting firm Deloitte thinks, anyway. Deloitte conducted an online survey that found area consumers plan to spend about 10 percent more on gifts this year. That's a lot higher than the 1 percent increase that the National Retail Federation is expecting for the country.

Meanwhile, Deloitte, which surveyed 5,089 people nationally and 500 Chicago residents, found that the total people will spend on the holidays on everything from gifts to decorations to entertaining, will drop 6.7 percent.

Amazon Lockers Heading to Staples Stores

Worried you're going to miss a package from Amazon? Soon you'll be able to pick it up at a nearby Staples store.

Staples has agreed to install "Amazon Lockers" in its U.S. stores, so online shoppers can pick up their Amazon packages directly from the office supply giant, according to a report from Reuters. Amazon already has such storage units at grocery and convenience stores like 7-Eleven.

The service allows Amazon shoppers to select a nearby locker during the checkout process where they want to retrieve their package. Amazon will then send the customer a text message or email with a unique pick-up code, which is entered on a touch screen to open the locker containing the package. Shoppers have three days from the time they receive the pick-up code to retrieve their package. Many of the lockers stay open 24 hours a day.

As part of the deal, Amazon pays a small fee to the host retailer. A Staples spokesperson did not immediately respond to a request for comment. The office retailer has not revealed any other details of the agreement.

The deal should, however, make it easier for many online shoppers to find an Amazon locker in their area, given the huge retail presence of Staples. As the world's largest office products company, Staples operates 1,872 retail stores throughout the U.S. and Canada.

Meanwhile, Amazon has been gearing up for a busy holiday shopping season. The company last week opened its Black Friday Deals Store, offering "thousands of discounts," and free shipping for "millions of items." Amazon is also in the process of hiring more than 50,000 seasonal employees at its fulfillment centers across the U.S.

Blacks and Hispanics Lost $1 trillion in Home Equity

Among the 10.9 million homes that went into foreclosure between 2007 and 2011, more than half of the "spillover" cost to nearby homes have led to a $1 trillion loss in home equity for African-American and Latino families., according to a new report by the Center for Responsible Lending titled, "Collateral Damage: The Spillover Costs of Foreclosures."

The report said, "Families impacted in minority neighborhoods have lost or will lose on average, $37,084 or 13 percent of their home value." By comparison, the overall average American homeowner affected by nearby foreclosures will lose only 7 percent of their home value, or $21,077.

The most recently-available census data shows that African-Americans and Latinos comprise less than 30 percent of the nation's population. Yet together, neighborhoods of color shoulder more than half of the $1.95 trillion in the drain on neighboring property values as a result of foreclosures.

"CRL's report is troubling evidence of how much the economic cost of foreclosures are spilling over into communities all over America," said Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights. "Communities of color – which have been targeted for years by predatory lenders, and abused for years by mortgage servicers – have been practically drowning. Until policymakers get serious about reducing foreclosures and restoring meaningful home ownership in all communities, a full economic recovery will likely remain out of reach."

Compounding the problem, communities of color still suffer from stark wealth gaps when compared to Whites. Earlier this year, the U.S. Census Bureau found that African-Americans, Latinos and Asian-Americans together lost nearly 60 percent of median household net worth from 2005-2010. Over that same period, median net worth for White families dropped by 23 percent, about a third of the loss rate for people of color. With fewer investment portfolios and lower earnings, the hope to build wealth for communities of color often rests with the value of their home investment.

As troubling as the report's findings are, the report also acknowledges that it does not cover all the negative impacts of foreclosures. In addition to reducing nearby property values, foreclosures also result in myriad other costs such as lost revenues to local governments, neighborhood blight, and increased crime.

"Families who lose a home cannot tap home equity to start a new business, pay for higher education or secure their retirement. Loss of a home also removes a financial cushion against unexpected financial hardships such as job loss, divorce or medical expenses, and eliminates the main vehicle for transferring wealth inter-generationally," the report observed.

Janet Murguia, president and CEO of the national Council of LaRaza agrees: "The wealth drain triggered by foreclosures is continuing unabated, hurting Latino families and other vulnerable communities the hardest. We're calling on policymakers to show strong leadership in stopping the foreclosure crisis and making fair and sustainable housing a national priority."