Investors reacted gloomily today to news of the re-election of U.S. President Barack Obama, which maintains the status quo of a gridlocked U.S. government with the House and Senate divided along partisan lines.

The Dow Jones industrial average sold off heavily Wednesday morning, falling by as much as 369 points before closing down 312.95 points, or 2.36 per cent, at 12,932.73. That's the Dow Jones's lowest level since the end of August.

The Toronto Stock Exchange was also lower, with the benchmark S&P/TSX composite index closing down 130.61, or 1.06 per cent, at 12,230.59 .

Asian and European stocks took a similar path, with Japan's benchmark Nikkei losing 10 points to 8,950 and European benchmarks such as Paris's CAC-40 and London's FTSE both moving lower.

Francis Lun, managing director of Lyncean Holdings in Hong Kong, said the results mean an extension of the status quo. Stability is normally welcomed by investors, but not when the situation being preserved is an American government paralyzed by infighting over economic issues.

"Nothing will change. We will have ultra-low interest rates, a $1-trillion deficit and quantitative easing," Lun said. "Bernanke will keep his job as Fed chairman."

Others were more upbeat about Obama's win over Republican rival Mitt Romney.

"I continue to believe that an Obama victory is less damaging to the U.S. economy than a Romney victory might have been," Scotiabank economist Derek Holt said. "That’s not a ringing endorsement of Obama’s policies, but an Obama victory averts the risk that Romney might have started a trade war with China."

Mark Carney, governor of the Bank of Canada, told CBC's Evan Solomon that he "wouldn't make very much out of a day's market reaction."

Carney said now is the time for U.S. authorities to sit down and start addressing the fiscal cliff.

'Fiscal cliff' looms

One of the most pressing issues facing the U.S. is the so-called fiscal cliff, a combination of higher taxes and government spending cuts that automatically take effect unless Congress acts by Jan. 1. Against the backdrop of yet another debate over America nearing its debt ceiling, that's unlikely to happen.

Economists have warned that if the higher taxes and cuts not avoided, the adverse effects on the economy could push the country back into recession.

Barack Obama, who was re-elected president, will have to work with Congress to deal with the looming 'fiscal cliff' in the U.S. (Carolyn Kaster/Associated PRess)

"The fiscal cliff is — simply put — the biggest tax increase [and] spending cut in history," said Leon LaBrecque, strategist at investment firm LJPR. "It's a colossal mess."

"It's a very bad thing to all of sudden make very large cuts to expenditures; the assumption was the so-called super committee of John Kerry and others was going to get a deal, they didn't," the Bank of Canada governor said on CBC’s Power & Politics.

Carney said that ending the Bush tax cuts "also takes a lot of stimulus away."

If that happened, it would have "an important impact on Canada," Carney said.

Beyond the fiscal cliff, a number of U.S. economic policies are of keen interest to Canada, due to the two countries' close trading relationship, not the least of which is the fate of the Keystone XL pipeline that Calgary-based TransCanada is trying to build to ship Canadian crude to U.S. refineries on the Gulf Coast.

Obama managed to delay the controversial decision of whether to approve the project into 2013, limiting its ability to become an election issue.

TransCanada issued a diplomatic statement Wednesday, saying it remains committed to the project and confident of its worth for both sides. "We have been working with the administration to advance the Keystone XL pipeline to a decision on our presidential permit application, and we will continue to do so," a spokesperson for the company said. "We continue to expect that a decision on the presidential permit will be made in [the first quarter of] 2013."

Even beyond Keystone, Canada's business community is keeping a close watch on economic developments south of the border.

"Given Canada's close economic ties with the U.S., the election results matter north of the border as well," TD Bank economists Derek Burleton and Diana Petramala said in a note."The ability of Canada's economy to grow moderately and sustainably over the next two years will in no small part depend on how the still-divided U.S. Congress tackles its fiscal issues."

Regulation concerns

"The fiscal cliff which everyone was talking about is coming up like a freight train in January," former Ontario finance minister Janet Ecker, now president of the Toronto Financial Services Alliance, told CBC News in an interview Wednesday. "That's the big question for Obama."

Ecker said Canada's financial services industry is also waiting to see what moves Obama might be planning in terms of regulation for the industry during his second term.

"Hopefully you're going to see him reaching out to the business community," Ecker said. "Uncertainty has caused too many CEOs to just not make decisions about new investment and new expansion because they didn't know what the rules were going to be.

"There's an accumulation of regulatory burden that might not be what you need," Ecker said. "He's got a long to-do list and I wish him the best on behalf of our economy."