Stocks fall as traders fear consumers aren't perking up

NEW YORK -- Investors' rising fears about consumer spending are turning stocks into a risky investment again.

Stocks fell by the sharpest amount in six weeks and Treasury prices soared Monday as investors around the world feared that consumers aren't too anxious to spend the economy into recovery.

The losses on stock exchanges extended the heavy selling that began Friday with a disappointing reading on consumer confidence. And bond investors, once again searching for a safe investment, bought heavily into Treasurys.

The Dow Jones industrials fell 186 points, while overseas, the Shanghai stock market tumbled almost 6% and the major indexes in Europe fell more than 1%.

Stocks slid across all industries as investors worried that consumers' reluctance to spend will hurt corporate earnings. Many companies' second-quarter results were boosted by cost-cutting, not higher sales, and the fear is that without a pickup in sales, earnings will fall.

While other parts of the economy, including housing and manufacturing, are showing signs of progress, the country cannot have a strong recovery unless consumers are spending more freely. Their spending accounts for more than two-thirds of U.S. economic activity.

Traders got more bad news about the consumer Monday when home improvement retailer Lowe's said poor weather and cautious dpending caused sales to fall 19% in the second quarter. The company's results missed analysts' forecasts.

The market's reaction to news of a reluctant consumer had many questioning whether a five-month rally was way too optimistic. At its recent high the S&P 500 index had climbed almost 50% from a 12-year low in early March.

Joe Saluzzi, co-head of equity trading at Themis Trading, said the market had risen too far and that the selling was warranted.

"The economics obviously don't support where we've been," he said.