Stocks tumble as investors fear rally may have been overdone
NEW YORK -- It didn't take long for September to live up to its reputation as the stock market's most dismal month.
The major U.S. stock indexes cratered 2% Tuesday, the first trading day of September. Investors bracing for a correction after the monster rally since mid-March opted to dump stocks despite more upbeat data that point to an economic recovery.
Some traders, including Jon Najarian at OptionMonster, blamed some of the selling on unsubstantiated rumors of a big bank default, which made already jittery investors even more anxious.
The broad U.S. market suffered the biggest percentage decline, with the Standard & Poor's 500 index falling 22.58 points, or 2.2%, to 998.04. Only 29 of the 500 stocks in the index finished up. It was the first time the index has closed below the key 1000 level since Aug. 19. The S&P 500 has slumped 3.2% in its current three-session losing streak after rallying more than 52% off of its March 9 bear market bottom.
The Dow Jones industrials shed 185.68 points, or 2.0%, to 9310.60, and the Nasdaq composite fell 40.17 points, or 2.0%, to 1968.89.
After the huge run-up on anticipation of an economic recovery, the market pullback is not totally unexpected, says Bob Barbera, chief economist at ITG.
The fact that stocks fell despite a key manufacturing index showing its first growth reading since January 2008 and a sixth consecutive monthly rise in pending home sales was viewed as a bad sign for stocks in the near term. Jeff Kleintop, chief market strategist at LPL Financial, says the positive economic data are "becoming less influential in moving markets," largely because much of the good recovery news is already priced into the market.
"The market appears to have become saturated with good news and is beginning to show signs of fatigue," he says.
Wall Street is starting to question whether the improving economic data is simply a one-shot deal because of government incentives, such as the cash-for-clunkers program that resulted in a surge in auto sales last month.
