NEW YORK – The stock market’s rally finally gave way on Tuesday, sending shares sharply lower as investors concluded that a six-month surge was overdone. At midday, all the major indexes fell more than 1.5 percent, including the Dow Jones industrials, which lost about 165 points. Stocks moved in tandem with oil prices, which fell about $1 to the $69 level.
Stocks plunged even after data showed U.S. manufacturing growing in August for the first time since January 2008. The market also shrugged off another piece of good economic news, the sixth straight monthly increase in pending home sales.
The market has long since factored in an economic recovery, analysts say, and market watchers have been anticipating a downward turn for weeks given the more than 50 percent surge stocks have made since hitting 12-year lows in early March. Trading has been choppy in recent days, with the market posting modest losses in the last two days of August.
“The market’s priced all of this in, and a lot more, quite frankly,” said Jeff Buetow, managing partner at Innealta Portfolio Advisors. “I just don’t see the growth out there.”
On the surface, the day’s numbers were good. But a deeper look at the data gave some cause for concern.
Analysts said both reports got a boost from government stimulus efforts, including the Cash for Clunkers program that has since expired, which means the recovery in housing and manufacturing may not continue at the same pace.
“In both cases it seems headlines overstate details by a touch,” said Tom di Galoma, head of U.S. rates trading at Guggenheim Capital Markets LLC. “People reviewed the numbers and said this type of demand is just not sustainable.”
Investors are also hesitant to buy stocks ahead of Friday’s employment numbers, which could reveal more bad news about the job market, one of the worst remaining problem areas in the U.S. economy.
The Dow Jones industrials dropped 167.09, or 1.8 percent, to 9,329.19. The Standard & Poor’s 500 index fell 18.90, or 1.9 percent, to 1,001.72, while the Nasdaq composite index fell 32.94, or 1.6 percent, to 1,976.12.