Investors are so jittery that the slightest whiff of bad news was enough to send the stock market into a tailspin yesterday, with the Dow Jones industrial average plunging more than 350 points and other key indexes falling as well.
Investors reacted to a tepid report on the strength of the country's manufacturing sector, falling foreign markets and an analyst's downgrading of Citigroup Inc.
But experts said none of the reasons, separately or combined, was so startling as to justify the sharp drop.
"We couldn't identify any one or two specific triggers for the sell-off. It seems like a multiplicity of factors," said John R. Boo, head of Nasdaq trading at Ferris, Baker Watts Inc. in Baltimore. "You could use whatever reason or excuse you want and probably be at least somewhat right. It is sort of a continuation of what we saw all summer."
The Dow index of 30 large companies fell 4.10 percent, or by 355.45 points, to close at 8,308.05. It was the fifth consecutive day of losses since Aug. 26, when it squeaked out a 46.05-point gain.
"Investors are focused on economic news and investment news, and the news is bad," said Hugh A. Johnson, chief investment officer at First Albany Corp. "That is why the stock market went down last week, and that is why it is going down this week."
Other indexes also fell. The Standard & Poor's 500 index, a broad gauge of the stock performance of big companies, lost 38.05 points, or 4.15 percent, to close at 878.02. The Nasdaq composite index, which is heavily weighted with large technology companies, slid 51.01 points, or 3.88 percent, to 1,263.84.
Trading on the New York Stock Exchange was moderate with 1.3 billion shares changing hands, and three stocks declined for every one that rose.
U.S. markets were closed Monday for Labor Day, and investors returned to face a rash of negative news.
One problem, financial experts said, was the falloff in Japan's stock market. The Nikkei stock average plunged to a 19-year low, losing 304.59 points, or 3.20 percent. Many European stock indexes fell too.
Those declines may have set the tone for U.S. markets, experts said. Minutes after the opening bell, the Dow slid nearly 50 points, recovered and then was down more than 200 points most of the day. In the last 40 minutes of trading, it was off more 300 points.
Another factor in the market's fall was weaker-than-expected manufacturing results, experts said. The Institute for Supply Management said U.S. manufacturing activity edged slightly upward in August, but not as high as analysts had forecast.
The institute's factory index, which gives an indication of manufacturers' health, was 50.5 percent, well below the 53.4 percent average for the first seven months of the year.
"New orders softened and are a cause for concern as we look at the balance of the year," Norbert J. Ore, chairman of the Tempe, Ariz.-based group, said in a news release. "At the current level of growth in the overall economy, many manufacturers find themselves anxious about second-half sales."
The market was also rattled when Prudential Securities banking analyst Michael Mayo told investors to sell shares of Citigroup because of weak earnings and Congress' investigation into the company's business dealings with Enron Corp. and WorldCom Inc., experts said. Citigroup's shares dived $3.36, or 10.26 percent, to $29.39, and many financial stocks also fell.
'Nervous as a cat'
"Analysts are nervous as a cat," said Donald R. Hays, president and investment strategist at Hays Advisory Group in Nashville, Tenn. "They are downgrading everything they can. They are no different than investors.
"People are still very nervous; they are still putting money in savings accounts."
Arthur Hogan, chief market analyst at Jefferies & Co., a Boston-based investment banking and institutional brokerage firm, said the market is jittery partly because people are worried about war with Iraq.
"There are ongoing fears ... of geopolitical issues," Hogan said. "I think that has the market on edge. People are very cautious right now."
Yesterday's loss continued a streak of declines for the Dow, which is down 17.10 percent for the year. The index lost 255.51 points last week in a four-day slide.
Grim economic numbers spooked the market last week, experts said, including new claims for unemployment benefits, which have risen to 403,000. Incomes - including wages, interest and government benefits - were flat in July, compared with the previous month. Wages and salaries also slipped by 0.2 percent.
"The numbers last week were bad numbers," said Johnson, the First Albany analyst.
A bright spot
One bright spot last week was consumer spending, which surged 1 percent to $7.35 trillion in July over the previous month.
"It is very hard to make the case for very good consumer spending numbers when ... incomes are not growing," Johnson said.
He believes investors should continue to hold portfolios that are defensive in nature, meaning that no more than 50 percent should be invested in stocks.
"You want to have a modest allocation in stocks," Johnson said. "Don't bet the ranch."
Although the stock market and economy have been weak, some experts believe both will strengthen in the months to come.
Alan D. Levenson, chief economist at T. Rowe Price Associates Inc., a Baltimore-based mutual fund company, said he expects gross domestic product - a key gauge of the economy's health - to grow by as much as 3 percent in the second half of the year.
"I do think the imbalances that have accumulated and have brought on the recession have been corrected to a large extent," Levenson said.
The economy is "a mixed picture, not one of a boom," he said.
Hays, too, expects the market to rise and the economy to improve later in the year.
"I think all of the news will be better news," the Nashville investment strategist said. "Every month will be better than the previous month."
Bloomberg News contributed to this article.