Fiscal Impasse and Europe Woes Weigh on Markets Henny Ray Abrams/Associated Press A trader on the floor of the New York Stock Exchange on Wednesday. A day after the election, the outlook of continued divided government in Washington and little prospect for compromise unnerved traders. Business leaders and investors on Wall Street reacted nervously to President Obama's re-election Wednesday, as the focus shifted quickly from electoral politics to the looming fiscal uncertainty in Washington. A gloomy economic outlook in Europe also prompted selling in markets worldwide. Stocks were sharply lower in afternoon trading in New York, with both the Standard & Poor's 500-stock index and the Dow Jones industrial average down 2.2 percent, as European shares sank and Asian stocks were mixed. While many executives on Wall Street and in other industries favored Mitt Romney, many had already factored in the likelihood of Mr. Obama winning a second term. Still, continued divided government in Washington and little prospect for compromise unnerved traders. "The bottom line is that this looks like a status quo election," said Dean Maki, chief United States economist at Barclays. The problem with that is that it doesn't resolve some of the main sources of uncertainty that are hanging over the economy. Companies in some sectors, like hospitals and technology, could see a short-term pop, said Tobias Levkovich, chief United States equity strategist with Citi. Other areas, like financial services as well as coal and mining, could be hurt as investors contemplate a tougher regulatory environment. Shares of Alpha Natural Resources, a coal giant, were down 11.8 percent, while Arch Coal was off 11 percent. But HCA Holdings, a hospital operator, was up 8 percent, to $33.39 a share. As a result of Mr. Obama's victory, Goldman Sachs said it upgraded its rating on HCA to buy from neutral, and raised its price target to $39 from $31. It also raised price targets for Tenet Healthcare and Community Health Systems, although both are still rated neutral. Goldman downgraded shares of Humana, a leading managed care company, to sell, and its shares fell 9.9 percent. Goldman warned that Humana and other managed care providers could be hurt as health care reform moves forward, especially new rules for health insurers that become effective in 2014. Mr. Levkovich predicted that the market would remain volatile between now and mid-January. If Congress and the president cannot come up with a plan to cut the deficit, hundreds of billions in Bush-era tax cuts are set to expire at the beginning of 2013 while automatic spending cuts will sharply cut the defense budget and other programs. Known as the fiscal cliff, this simultaneous combination of dramatic reductions in government spending and tax increases could push the economy into recession in 2013, economists fear. But it was not just the election results driving shares lower - there was more gloomy economic news out of Europe. The European Union will experience only a very weak economic recovery during 2013 while unemployment will remain at "very high" levels, according to a set of forecasts issued Wednesday by the European Commission. This year, gross domestic product will shrink by 0.3 percent for the 27 members of the union as a whole and by 0.4 percent for the 17 European Union countries that use the euro, the commission predicted. Growth in 2013 will be a meager 0.4 percent across the union and only 0.1 percent in the euro area, it said. Not only is that level of growth far slower than even the tepid pace of the recovery in the United States, it also makes it more difficult for debt-burdened European economies to get their financial house in order. As markets neared the close in Europe, the Euro Stoxx 50 index, a barometer of euro zone blue chips, fell 2.2 percent, while the FTSE 100 index in London was 1.5 percent lower. The S.&P./ASX 200 in Australia closed up 0.7 percent, as did the Hang Seng Index in Hong Kong. The Nikkei 225 stock average in Japan ended trading little changed. "There's a huge question mark hanging over what happens in the next few weeks," said Aric Newhouse, senior vice-president of policy and government relations at the National Association of Manufacturers. The fiscal cliff is the 800-pound gorilla out there. "We can't wait," he said. We think the idea of going over the cliff has to be taken off the table. We've got to get to the middle ground. For all the anticipation, some observers said the election still left plenty of unanswered questions. "While we have clarity on the players now, we don't have any more clarity on what will happen in terms of the fiscal cliff," Mr. Maki said. We still have a divided government and they haven't been able to agree on what to do. If the full package of tax increases and spending cuts go into effect, that would equal a $650 billion blow to the economy, Mr. Maki said, equivalent to 4 percent of the gross domestic product. Mr. Maki envisions a partial compromise, with $200 billion in tax increases and spending cuts. Partly because of that, he estimates, the annual rate of economic growth will dip to 1.5 percent in the first quarter of 2013 from 2.5 percent in the fourth quarter. He predicted that if the full fiscal cliff were to hit, the economy would contract in the first half of 2013. James Kanter contributed reporting.