Stocks tumble on bleak outlook for world economy
NEW YORK -- Investors betting on a healing economy suffered a big setback Monday.
The Dow Jones industrial average skidded 200.72 points, or 2.4%, to 8339.01 after the World Bank said it expected the global economy to shrink 2.9% this year. The previous forecast called for the economy to contract 1.7%.
Hurt mainly by declines of stocks in the real estate services, metals & mining and coal industries, the Standard & Poor's 500 index lost 28.19 points, or 3.1%, to 893.04. The Dow is down 5.0% this year, and the S&P 500 is off 1.1% and in its biggest slide since the March low.
The Nasdaq composite remains the last major U.S. stock market index in the black, by 12.0%, for 2009. The tech-heavy index fell 61.28 points, or 3.4%, to 1766.19 on Monday.
The market's recent sell-off "isn't going to give anyone confidence," says Todd Salamone of Schaeffer's Investment Research. The fact the S&P 500 is now below 900 and has crossed below the trend line of its average price over the past 200 days may unnerve investors, he says. "Now, the optimism may unwind," he says.
Given that stocks have soared 32% from March lows, it's not surprising to see them settle back a bit, says Jennifer Ellison of Bingham Osborn & Scarborough. But she fears if the selling intensifies, it could feed on itself. "The herd mentality in this market can take over," she says.
Deteriorating hopes for a quick economic recovery also weighed on the prices of oil, metals, and other commodities. Those commodity price drops in turn sent energy and metal producers' shares falling.
Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners, said stock investors want to see stability in commodity prices — not a surge or a tumble.
A sharp rise in commodity prices hurts consumers, while a sharp drop is sign of weak demand around the world.
"You need a balancing act within the commodity markets," Cardillo said.
The stock market is coming off its first weekly loss in more than a month after mixed economic readings last week.
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