The Dow fell below 13,000, while the S&P 500 traded under 1,400 for the first time since early September.
"I don't think there's a long-term market reaction to the presidential election itself--it's now how quickly we can focus on the 'fiscal cliff' and coming up with a resolution," said Art Hogan, managing director of Lazard Capital Markets.
The Dow Jones Industrial Average plunged 350 points in its biggest one-day loss in nearly a year, dragged heavily by Bank of America and JPMorgan.
The S&P 500 and the Nasdaq were also sharply lower. The CBOE Volatility Index, widely considered the best gauge of fear in the market, spiked above 19.
All key S&P sectors were firmly in the red, led by energy and financials.
Obama was re-elected president Tuesday night, put over the top by the crucial battleground state of Ohio following the most expensive election in U.S. history.
Meanwhile, ratings agency Fitch said Obama needs to move quickly to avoid the "fiscal cliff" that is threatening the country's economic recovery, adding that failure to address the issue would likely result in a downgrade in 2013.
Wall Street had favored Romney and the Republican ticket in part because it preferred their approach of retaining tax cuts, and making spending cuts. The Obama Administration favors raising taxes on the richest Americans, and also increasing capital gains and dividend taxes.
Meanwhile, European shares sharply reversed their gains following ECB President Mario Draghi's negative comments on the region's economy. Draghi said economic activity in the euro zone area is expected to remain weak and the slowdown may have reached Germany.
And the members of Greece's parliament are expected to vote on a new package of austerity measures with the government's majority under threat. If the bill doesn't pass, Greece will not receive its next financial aid installment of 31.5 billion euros ($40.2 billion) on Monday.
"The U.S. election temporarily flipped worries over Europe, but Europe still has an important role in global markets," said Quincy Korsby, market strategist at Prudential Financial. "They've obviously been a chronic condition, but it's flare ups like today that grab attention."
On the economic front, weekly mortgage applications declined last week as Hurricane Sandy battered the East Coast and disrupted normal business activity, according to the Mortgage Bankers Association.
The Federal Reserve will release its consumer credit report for September at 3 p.m. New York time. Economists polled by Thomson Reuters forecast a $10.1 billion gain, after a $18.1 billion increase in August.