Stocks Swoon as Worries About the Economy Return

Grim signals about consumer spending ripped through the markets Friday, sending stocks tumbling as investors raced for safe havens.

Specialist Scott Wetzel works at his post on the floor of the New York Stock Exchange Friday, Oct....

Specialist Scott Wetzel works at his post on the floor of the New York Stock Exchange Friday, Oct. 30, 2009. Stocks plunged Friday, erasing all of the previous day's big gains, as a drop in consumer spending fanned worries that the economic recovery won't be sustainable. (AP Photo/Richard Drew)

(AP)

The Standard & Poor's 500 index and the Nasdaq composite index ended with losses for October, breaking a streak of seven months of gains. The Dow Jones industrial average tumbled 250 points, erasing a gain of 200 Thursday and ending the month flat.

Drops in key barometers of the health of consumers — what they're spending, what they're earning and how they're feeling — fanned worries that an economic recovery celebrated by the market only a day earlier won't last.

The huge reversal in market sentiment reflected how desperate stock investors are to reach conclusions about how the economy is doing, and how quickly they are willing to abandon those convictions.

The about-face from Thursday to Friday in the S&P 500 index, the benchmark for many mutual funds, was the sharpest swing for since February.

"I think you have a market that is ultimately looking for its direction," said Bob Froehlich, senior managing director at Hartford Financial Services. "We really are at the inflection point. You tend to have an overreaction to both extremes."

A day after a euphoric rally pushed stocks up the largest amount in three months, on Friday investors fretted that strapped consumers won't be able to carry on a recovery in the economy that has been driven by government spending and companies boosting profits through cost-cuts.

The heaviest selling came in areas that have been stalwarts of the market's powerful climb since March: financials, technology, energy and industrials. The safest areas, like health care, consumer staples and utilities, fared somewhat better.

Investors fled to safer assets like the dollar and Treasurys.

The Dow fell 249.85, or 2.5 percent, to 9,712.73, its lowest close since Oct. 5. It was the Dow's biggest one-day percentage drop since July 2 and left the index with a meager gain of 0.005 percent for the month.