NEW YORK — A stream of negative economic reports has revived fear about the health of the U.S. economy, causing stocks to suffer their worst day in seven months and adding to a 7% decline since mid-January.
Stocks were pounded by discouraging data released Monday on manufacturing, auto sales and construction spending. The disappointing U.S. reports rattled investors already uneasy over political and financial turmoil in emerging-market countries such as Turkey, India and South Africa.
Investors, worried that the economy may have lost some of its momentum, responded by heading for the exits. The Dow Jones industrial average plunged 326.05 points, or 2.1%, to end the session at 15,372.80.
"Perhaps this economy isn't all that it was made out to be in terms of the growth forecasts that were dominating at the end of 2013," said Patrick J. O'Hare, chief market analyst at briefing.com.
The fresh round of worries comes at a time when the Federal Reserve is reining in its massive stimulus programs, which have helped prop up the stock market and kept interest rates at historic lows. Traders have already been worried that the Fed, long seen as a safety net for the financial markets, might be tapering these programs too soon.
Wall Street will get its next big glimpse about which way the economy is heading when the government reports its January jobs numbers Friday. The report is the most-watched piece of data not just by Wall Street, but also Fed policymakers.
The rough start to 2014 is especially sobering for investors who saw their portfolios and retirement accounts skyrocket during the stock market's record-breaking rally last year. Investors are spooked in part because the decline has struck at the beginning of the year. Many Wall Street pundits expected a correction at some point, but few expected it so soon.
The decline is troubling in part because the market's performance at the start of the year often foreshadows its annual fate. Over the last 85 years, the direction of the Standard & Poor's 500 index in January has presaged its annual performance 73% of the time.
The pattern holds less frequently when stocks fall. Still, a first-month tumble has led to a full-year decline 60% of the time.
On the bright side, some investors spent much of last year lamenting that they were left on the sidelines while stocks raced higher. The sell-off may provide a chance for bargain hunters who have waited for share prices to fall back to Earth.
The Dow, America's most closely watched barometer for stocks, has shed about 1,200 points since the start of the year. Much of those losses have come in the last few weeks, during which the blue-chip index suffered five triple-digit sell-offs that included a pair of 300-point declines.
Broader indexes also shriveled Monday. The S&P 500 tumbled 40.70 points, or 2.3%, to 1,741.89. It's off nearly 6% this year. And the technology-focused Nasdaq composite index lost 106.92, or 2.6%, to 3,996.96. It's down 4.3% so far in 2014.
The pain might not be entirely a bad thing — especially after major stock indexes soared 30% last year.
Stock watchers expected this year would be more volatile, and anticipated pullbacks and even a correction as the market recalibrated. Major indexes are still about 4% shy of an official correction, which is considered to be a 10% drop from their most recent peaks.
"Most of what's happening is just a garden-variety correction," said John Bollinger, head of Bollinger Capital Management in Manhattan Beach. "We came too far too fast, and this is a little reality setting in. People are taking a breath and pulling some money out."
All told, investors yanked $525 billion out of the stock market Monday, as measured by the broad Wilshire 5000 Total Market Index.
There were signs of worry throughout the market. The VIX index, a measure of stock market volatility, rose to its highest level since December 2012. Investors shifted into U.S. government bonds, pushing yields lower and extending their sharp decline since the start of the year.
As they have fled developing countries, investors plowed into traditional havens like U.S. Treasury bonds. The benchmark 10-year Treasury bond's yield was at 2.58% Monday, down sharply from 3% at the start of the year. (Bond yields fall as their prices rise.)
The deep sell-off in emerging markets around the world has caught investors flat-footed.
Investors rushed into the emerging world in recent years in search of faster economic growth and better returns than seemed feasible in the U.S. and Europe. But investors are fleeing amid concern that the global era of low interest rates hid underlying economic problems and political disorder.
The travails of Turkey and Hungary won't torpedo the U.S. economy. But they've added a layer of uncertainty and given jittery investors a reason to sell.
Ricardo Lopez contributed to this story.Copyright © 2015, Los Angeles Times