U.S. stocks drop on jobs report, electoral uncertainty, Dow falls 1.05%

Investing.com - U.S. stocks dropped despite stronger-than-expected October jobs numbers, as investors fled to the safety of the dollar to await Tuesday's presidential elections.

At the close of U.S. trading, the Dow Jones Industrial Average fell 1.05%, the S&P 500 index was down 0.94%, while the Nasdaq Composite index was down 1.26%.

The U.S. Bureau of Labor Statistics revealed early Friday that the U.S. economy added 171,000 jobs in October, beating out analysts' calls for a gain of around 125,000, which sparked demand for U.S. assets.

The headline unemployment rate rose to 7.9% from 7.8% in September.

Investors snapped up greenback positions on the news, though they stopped short of engaging in a full risk-on session, which was bearish for stocks.

The economy didn't add enough jobs to reflect a more robust U.S. recovery.

Many analysts have said the economy should create at least 250,000 a month on an ongoing basis before recovery really gains steam.

U.S. voters go to the ballot box on Tuesday to elect a new president, and polls show President Barack Obama or his Republican challenger, Mitt Romney, running neck and neck ahead of time.

Investors went long on the dollar on the last Friday before Election Day to ride out electoral uncertainty.

Results could have major long-range impacts on markets.

Mitt Romney has suggested he opposes the Federal Reserve's loose policies, including quantitative easing, under which the Fed buys bonds held by banks, pumping the economy full of liquidity to depress borrowing costs to spur recovery.

Fed Chairman Ben Bernanke's term ends in January of 2014, and a Romney victory could up the chances that today's head of the U.S. central bank could be replaced by a more hawkish figure.

The Fed is currently running a round of quantitative easing by buying USD40 billion in mortgage debt from banks a month to spur recovery.

Some investors sold stocks and chased dollar positions on Friday on sentiment that October's jobs report may be strong enough to convince the Fed to consider exiting its interventionist policies in the coming months.

In the more immediate future, a fast-approaching fiscal adjustment is due to strike the U.S. economy, which continued to quell appetite for risk.

At the end of this year, the Bush-era tax cuts and other tax benefits expire at the same time pre-programmed cuts to government spending take effect, a combination known as a fiscal cliff that could send the country into recession if left unaddressed by Congress.

With elections behind them, a new Congress and the White House may be more willing to address politically unpopular tax and spending issues, though investors began to stock up on greenbacks in anticipation of political indecisiveness and market volatility in the coming weeks.

Leading Dow Jones Industrial Average performers included Bank of America, up 1.23%, Merck, up 0.17%, and Walt Disney Co., up 0.16%.

The Dow Jones Industrial Average's worst performers included Chevron, down 2.89%, Caterpillar, down 2.11%, and IBM, down 1.86%.

European indices, meanwhile, finished higher.

After the close of European trade, the EURO STOXX 50 rose 0.52%, France's CAC 40 rose 0.49%, while Germany's DAX 30 finished up 0.38%. Meanwhile, in the U.K. the FTSE 100 rose 0.11%.