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..
A big sell-off in Asia followed through to Wall Street. The Shanghai stock market fell 5.8% Monday as investors worried that stocks had shot up too quickly there, too, and that the Chinese government would tighten bank lending policies. Investors outside China have been hoping that strengthening there would spill over to other economies.
A Wall Street "fear index" jumped nearly 15%, signaling that investors were getting nervous. Government bond yields, which move in the opposite direction of price, fell to 3.47% from 3.57% as investors sought a haven.
About 2,700 stocks fell while only 335 rose on the New York Stock Exchange, where volume came to 1.2 billion shares compared with 1.1 billion Friday.
Meanwhile, the yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.47% from 3.57% late Friday.
Overseas, China's main market fell 5.8% as investors worried that stocks had risen too quickly and the government would tighten bank lending policies. Japan's Nikkei stock average fell 3.1% as investors weren't satisfied by news that the country had emerged from recession in the second quarter.
In Europe, Britain's FTSE 100 fell 1.5%, Germany's DAX index lost 2%, and France's CAC-40 fell 2.2%.
Commodity prices slid as investors grew worried that demand would fall. A barrel of crude oil fell 76 cents to settle at $66.75 a barrel on the New York Mercantile Exchange. It is down more than 5% in two days.
Among companies reporting results Monday, Lowe's fell $2.36, or 10.3%, to $20.47.
The dollar rose against other major currencies, while gold prices fell.
The Russell 2000 index of smaller companies fell 15.72, or 2.8%, to 548.18.
Contributing: Associated Press