Investors watch stock market stumble into February

For investors, February is starting off even rougher than January.

U.S. stocks tumbled on Monday, pushing the Dow Jones industrial average down more than 320 points after reports of sluggish U.S. growth added to investor worries about the global economy. It was the biggest one-day decline for the blue-chip index in more than seven months. And the drop followed the Dow’s worst January performance since 2009.

The market stumbled from the get-go, with U.S. stocks opening lower after declines in European and Japanese indexes. Then it quickly turned into a slide as a spate of discouraging economic data on everything from manufacturing to auto sales to 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 was down more than 5 percent for 2014.

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 2 1/2 years without a 10 percent correction.”

All told, the Dow dropped 326.05 points, or 2.1 percent, to close at 15,372.80, its biggest decline since June 20, 2013. 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 extending their sharp decline in 2014.

Staffing company Robert Half International declined the most among stocks in the S&P 500 index. CarMax and Pfizer were among the few stocks to eke out gains on the day.

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 temperatures 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 – the world’s second-largest – can spell bad news because it drives exports and is a key trading partner for developing countries such as South Africa and Indonesia.

Investors have been looking for more pullbacks this year and possibly a correction, the technical term for when a stock market index like the S&P 500 falls 10 percent or more. Three months ago, analysts at Goldman Sachs said there was roughly a 60 percent chance that a correction would happen this year.

Monday’s slide moved the market closer to that possibility.

Among other negative signs for the market: In 2013, the Dow had only one 300-point-plus down day. It’s had two 300-plus drops in 2014, barely two months in.

“I think we are in correction phase and the bias will be to the downside for a while longer,” said Frank Davis, director of trading at LEK Securities. “It would make sense to see a healthy pullback after last year. Air has to come out of the market.”

All 10 sectors in the S&P 500 index fell, and telecommunications stocks posted the biggest declines, weighed down by AT&T and Verizon Communications.

Facing lower stocks and global jitters, investors moved into the relative safety of U.S. government bonds. Bond prices rose, and the yield on the U.S. 10-year Treasury note fell to 2.58 percent from 2.65 percent on Friday. The 10-year has had a dramatic move in the last two weeks. In mid-January, the 10-year note was trading at a yield around 2.9 percent.