Oct 30, 2009 4:00 pm US/Eastern
Stocks Swoon As Worries About Economy Return
NEW YORK (AP) ―
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A trader works on the floor of the New York Stock Exchange in late afternoon trading on August 3, 2009 in New York City. (File)
Spencer Platt/Getty Images
Stocks tumbled Friday as a drop in consumer spending fanned worries that the economic recovery won't be sustainable.
Major stock indexes tumbled more than 2 percent, including the Dow Jones industrials, which gave back all of a 200-point gain Thursday. Banks as well as energy and materials companies posted the biggest losses.
Investors raced to safer assets like the dollar and Treasurys. At the same time, the Chicago Board Options Exchange's Volatility Index, known as the market's fear gauge, soared nearly 25 percent to its highest level since July.
Stocks headed lower after the Labor Department said personal spending fell 0.5 percent in September. The drop was in line with forecasts, but it was the largest slide in nine months and followed a 1.3 percent jump in August fueled by the government's popular Cash for Clunkers car rebate program.
The slide marked an about-face for the market, which rallied strongly on Thursday after the government reported that the economy grew faster than expected in the summer. Much of the 3.5 percent jump in gross domestic product was tied to government spending programs, however.
The poor report on personal spending cast further doubt on the economy's recovery, which many economists fear has been driven largely by the government stimulus. Without a rebound in consumer spending, which makes up a major part of the U.S. economy, investors worry the recovery won't last.
With Friday being the last day of the month and the end of the fiscal year for many mutual funds, the market's gyrations could be exaggerated, analysts said. Fund managers looking to minimize taxes for shareholders often sell some of their investments as the fiscal year comes to a close.
According to preliminary calculations, the Dow fell 249.85, or 2.5 percent, to 9,712.73. It ended flat for October.
The broader Standard & Poor's 500 index fell 29.92, or 2.8 percent, to 1,036.19, and the Nasdaq composite index dropped 52.44, or 2.5 percent, to 2,045.11.
(© 2009 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
Timeline: U.S. Credit Crunch & Financial Failures
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