Stocks tumble as traders fear consumers aren't perking up

ByABC News
August 17, 2009, 9:33 PM

NEW YORK -- The still-fragile state of consumers' purchasing power and confidence level resurfaced as a major worry for stock investors Monday. The fallout: a nearly 200-point drop for the Dow, its biggest one-day sell-off in more than six weeks.

In the first trading day after the University of Michigan released a less-than-upbeat reading on August consumer sentiment Friday, a weak profit report Monday from home improvement chain Lowe's reminded investors that a consumer-led economic recovery will be sluggish at best.

Investors, of course, have driven the broad U.S. stock market up nearly 50% since the market troughed in early March on the bet that an economic recovery was on the horizon. Signs of economic stabilization in the form of better data on housing and jobs reinforced that view.

But the recent reports on a still-sluggish consumer are putting pressure on stocks and prompting concerns that stocks have risen too far too fast given the still-weak state of the economy and that stocks are due for a meaningful correction.

"The emerging trend is that the primary area of weakness in this economic recovery is the consumer," says Mike O'Rourke, chief strategist at BTIG.

The Dow Jones industrial average slid 186.06 points, or 2%, to 9135.34, its biggest one-day loss since July 2. The Dow has fallen two consecutive sessions and six of the past nine. The Dow has lost 262.85 points, or 2.8%, in the past two sessions, its biggest two-day point and percent loss since June 16.

The broader S&P 500 index fell 24.36, or 2.4%, to 979.73, while the Nasdaq fell 54.68, or 2.8%, to 1,930.84.

"The combination of a weaker-than-expected economic statistics, an overbought stock market and rising investor expectations has created a headwind for stocks over the near term," notes Bruce Bittles, chief investment strategist at Robert W. Baird & Co..