Dreaded September, historically the stock market's worst month of the year by far, arrived Tuesday -- and share prices tumbled on cue.
Fears about September this year have been compounded by Wall Street's six straight months of gains without a significant decline. The Standard & Poor's 500 index rallied 3.4% in August, ending the month up 51% from a 12-year low on March 9.
Stocks opened higher Tuesday, sending the Dow Jones industrials up 60 points, in response to a better-than-expected reading on manufacturing activity in August.
But the market reversed course on a rumor that a major bank was in financial trouble.
The Dow finished at 9,310.60, down 185.68 points, or 2% -- its biggest drop since it fell 186.06 points on Aug. 17.
The S&P; 500 slid 22.58 points, or 2.2%, to 998.04, while the Nasdaq composite fell 40.17 points, or 2%, to 1,968.89.
Five stocks fell for every one that rose on the New York Stock Exchange.
The bank rumor, though unsubstantiated, sent an index of financial stocks in the S&P; 500 down 5.3%, the biggest drop of any broad industry group.
AIG tumbled $9.33, or 20.6%, to $36, Fannie Mae lost 34 cents, or 17.6%, to $1.59 and Freddie Mac slumped 39 cents, or 17%, to $1.90.
Though many investors remain optimistic that the economy is clawing its way out of recession, they also know that stock prices don't travel on a one-way street.
The expectation of a sharp pullback "is ubiquitous now," said Art Hogan, chief market analyst at brokerage Jefferies & Co. in Boston.
September would seem to be the right month to get the job done. Over the last 50 years the stock market has lost ground more often in this month than in any other.
To put it another way, the Dow index has risen in September just 34% of the time since 1959. Most months the market has been up 50% of the time or more.
There's no single explanation for why the ninth month is so unkind to stocks. One long-standing theory is that money managers return from summer vacation inclined to clear out losing or overpriced investments and start positioning their portfolios for the kind of economy they expect in the new year.
Entering this September, Wall Street already was facing many of the classic signs of at least a near-term market peak, including high levels of bullishness in investor sentiment surveys and a surge in stock sales by corporate insiders.
Still, just how willing investors will be to let go of stocks should hinge on the economic data and whether hopes for some kind of recovery in consumer and business spending are bolstered or quickly fade, analysts say. If expectations are as far ahead of reality as the bears insist, September could easily live up to its billing as a month of market misery.
But if faith in a recovery holds and the credit markets continue to heal, the calendar will again become a factor for stocks: Once investors get through September and October, they know that November and December typically are the market's strongest back-to-back months of the year.