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.
No major economic reports were released Monday, but in the coming days traders will get data on new and existing home sales, durable goods orders, gross domestic product and personal incomes and spending.
The Federal Reserve will be in the spotlight when its two-day meeting on monetary policy finishes Wednesday. The central bank is expected to hold its key rate steady near zero, but investors want to know whether policymakers will buy more Treasurys than they initially planned.
The Fed has been buying government debt at the same time the Treasury Department has been issuing record amounts of that debt. The Treasury is planning to auction $104 billion in debt this week.
Most economic readings over the past few months have indicated the economy is still sliding, but at a slowing pace.
Highlights:
ExxonMobil fell $2.21 to $68.84 as part of a broader decline by energy stocks. Fears of a weaker-than-expected economy pushed the price of a barrel of oil down $2.52 to $67.50.
•Eastman Kodakfell 23 cents to $2.62. The photography company said it will no longer produce Kodachrome film. The company gets most of its revenue from digital photography products.
•Walgreen, a drugstore chain, fell $1.79 to $29.64. The company said its quarterly profit fell 9% to $522 million. That missed Wall Street estimates by 5%, says Thomson Reuters.
•Bank of Americafell $1.28 to $11.94. Shares of financial companies were weak following the World Bank's prognosis. The Financial Select Sector SPDR, which tracks the financial industry, fell 5.8%.
•Rambus, a maker of computer memory chips, fell 87 cents to $17.83. The company cut its financial forecast for the current quarter by about 3%, and said it plans to sell $150 million in debt that matures in 2014.
Overseas, Japan's Nikkei stock average rose 0.4%. In late trading, Britain's FTSE 100 fell 2.6%, Germany's DAX index fell 3%, and France's CAC-40 fell 3%.
Contributing: Associated Press