As markets' slide deepens, some see 'healthy correction'

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Posted: Monday, February 3, 2014 12:00 am | Updated: 2:21 pm, Thu Jun 5, 2014.

For investors, February is starting out just as rough as January.

U.S. stocks tumbled Monday, pushing the Dow Jones industrial average down more than 325 points after reports of sluggish U.S growth added to investor worries about the global economy. The slump follows the Dow's worst January performance since 2009.

The market stumbled from the get-go, with U.S. markets opening lower after declines in European and Japanese indexes. Then it quickly turned into a slide as a spate of discouraging economic data on manufacturing, auto sales and construction spending poured in.

By late afternoon, the sell-off accelerated further, bringing the Dow down more than 7 percent for the year. The S&P 500 index is down more than 5 percent on the year.

Some stock watchers took the market's decline in stride. They considered it a necessary recalibration following the market's record highs at the end of last year.

“It's a bit painful for investors to see the equities markets drop as they have, but this is healthy for this market,” said Chris Gaffney, a senior market strategist at EverBank. “We've been almost 2½ years without a 10 percent correction. So we're still in that healthy correction, if you will.”

All told, the Dow tumbled 326.05 points, or 2.1 percent, to 15,372.80. It fell as much as 342 points earlier in the afternoon. The Standard & Poor's 500 index lost 40.70 points, or 2.3 percent, to 1,741.89. The Nasdaq composite dropped 106.92 points, or 2.6 percent, to 3,996.96.

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 continuing their sharp decline since the start of the year.

Cold U.S. weather emerged as a common problem for the economy last month.

Investors were discouraged Monday by a private survey showing U.S. manufacturing barely expanded last month as frigid weather delayed shipments of raw materials and caused some factories to shut down. Construction spending rose modestly in December, slowing from healthy gains a month earlier.

Automakers also piled on the disappointing news, as an icy January slowed vehicle purchases.

“Investors had expectations going into 2014 of a much stronger U.S. economic recovery than actually what we're seeing, and we've had to reset our expectations,” Gaffney said.

Fresh signs of weakness in China also weighed on the minds of investors.

An official Chinese manufacturing survey released over the weekend showed factory output grew at a slower rate in January compared with December. The report released on the weekend followed an HSBC survey that showed an outright contraction in manufacturing.

Any signs of slowdown in China's economy can spell bad news because it drives exports and is a key trading partner for developing countries such as South Africa and Indonesia that supply Chinese factories with raw materials.

© 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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