Dow Drops 5.1% as Financials Take a Hit

It was back to business for Wall Street Wednesday.

Stocks ended sharply lower as a layer of uncertainty was removed with the presidential election complete, but anxiety over the economy returned to the market and financials took a hit.

The Dow Jones Industrial Average lost 486.01, or 5.1 percent, to close at 9139.27. The Standard & Poor's 500 index shed 5.3 percent and the Nasdaq tumbled 5.5 percent.

Barack Obama swept the White House in a decisive victory that, at last count, had him with 349 electoral votes to John McCain's 163, making him the first African-American president in U.S. history. He also soared past McCain in the popular vote.

In his victory speech Tuesday night, Obama said, "change has come to America."

But he was mindful of the tough job that lies ahead.

"Even  as we celebrate tonight, we know the challenges that tomorrow will bring are the greatest of our lifetime — two wars, a planet in peril, the worst financial crisis of a century," he told a crowd of more than 125,000. "The road ahead will be long. Our climb will be steep," he said, but added: "I promise you, we as a people will get there."

He also reached across the aisle to McCain's supporters.

"To those Americans whose support I have yet to earn — I may not have won your vote, but I hear your voices, I need your help, and I will be your president, too," he said.

>>See complete election coverage at CNBC.com.

But, as Obama supporters reveled in the candidate's historic victory, Wall Street bowed out of the celebratory glow, turning instead to the grim reality of what lies ahead for the economy.

And traders didn't have to look far to be reminded of the economic challenges facing the 44th president.

The Institute for Supply Management reported its gauge of service-sector activity shrank more than expected in October, falling to 44.4. from 52.1 in October. Economists had expected a more measured drop to 49.

Private employers cut a larger-than-expected 157,000 jobs in October, payroll firm ADP reported. And, planned layoffs surged to their highest in nearly five years during October, with cuts in the financial and auto sectors leading the charge, according to a report from outplacement firm Challenger, Gray & Christmas.

And, U.S. mortgage-application demand fell to an eight-year low amid a sharp decline in refinancing.

Indeed, Obama's presidential-election prize comes with an albatross—the buckling economy, saddled with the housing meltdown and worst financial crisis in 70 years—that has left Wall Street wondering how Obama will handle it and if he'll be able to jump-start confidence.

>> Five economic challenges ahead for Obama

All 30 Dow stocks finished lower, led by Citigroup and Bank of America as financials took a pounding over news that all the big broker-banks are preparing for layoffs of up to 15 percent of their staffs as the economic slowdown continues to pound Wall Street. Adding insult to injury, Wall Street executives are expected to see their bonuses slashed by an average 50 percent.

(Track all 30 Dow stocks.)

Some of the biggest hits will come at Merrill Lynch , where 10,000 employees could be jettisoned as a result of the merger with Bank of America.

JPMorgan Chase is eliminating a group that traded the bank's own money in areas ranging from stocks to bonds to commodities, and will likely lay off some traders, according to Reuters.

Yahoo shares rose after Google announced plans to walk away from a search-advertising partnership between the two companies. Google shares fell.

The two biggest bond insurers were facing intense pressures following poor earnings reports.

Ambac tumbled more than 25 percent after the company reported a much bigger third-quarter loss, hurt by heavy investment write-downs and market losses. The quarterly results were hit by $2.7 billion of unrealized losses on credit derivatives contracts, and the loss of its top-level credit rating.

And competitor MBIA was off about 20 percent after the company reported a much larger third-quarter net loss on Wednesday, hurt by increased loss reserves and net investment losses. The net loss widened to $806.5 million, or $3.48 a share, from $36.6 million, or 30 cents a share, a year earlier.

Energy prices surrendered some of their Tuesday gains, with oil off nearly $2 a barrel in morning trade.

Credit spreads continued to ease as well, with overnight and 3-month interbank lending rates again moving lower.

Shares of Dell rose after the computer maker, which is nearing the end of nearly 9,000 job cuts, has asked employees to consider taking up to five days of unpaid vacation and is offering voluntary severance packages.

Asian stocks were mixed, after an initial rally following the elections result, with the Nikkei closing up 4.46 percent.

European shares snapped a six-day winning streak as commodity stocks tracked falling crude and metals prices and after France's biggest bank, BNP Paribas, said its profit was cut in half.

Still to Come:

WEDNESDAY: Earnings from Cisco and News Corp after the bell
THURSDAY: Monthly chain-store sales; weekly jobless claims; BOE, ECB announcements; Earnings from Anheuser-Busch
FRIDAY: Jobs report; pending-home sales; wholesale trade; consumer credit; Earnings from Ford, Sprint Nextel and Berkshire Hathaway

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