NEW YORK — Grim signals about consumer spending ripped through the markets Friday, sending stocks tumbling as investors raced for safe havens.
The Standard & Poor's 500 index and the Nasdaq composite index ended with losses for October, breaking a streak of seven months of gains. The Dow Jones industrial average tumbled 250 points, erasing a gain of 200 Thursday and ending the month flat.
Drops in key barometers of the health of consumers – what they're spending, what they're earning and how they're feeling – fanned worries that an economic recovery celebrated by the market only a day earlier won't last.
The huge reversal in market sentiment reflected how desperate stock investors are to reach conclusions about how the economy is doing, and how quickly they are willing to abandon those convictions.
The about-face from Thursday to Friday in the S&P 500 index, the benchmark for many mutual funds, was the sharpest swing for since February.
"I think you have a market that is ultimately looking for its direction," said Bob Froehlich, senior managing director at Hartford Financial Services. "We really are at the inflection point. You tend to have an overreaction to both extremes."
A day after a euphoric rally pushed stocks up the largest amount in three months, on Friday investors fretted that strapped consumers won't be able to carry on a recovery in the economy that has been driven by government spending and companies boosting profits through cost-cuts.
The heaviest selling came in areas that have been stalwarts of the market's powerful climb since March: financials, technology, energy and industrials. The safest areas, like health care, consumer staples and utilities, fared somewhat better.
Investors fled to safer assets like the dollar and Treasurys.
The Dow fell 249.85, or 2.5 percent, to 9,712.73, its lowest close since Oct. 5. It was the Dow's biggest one-day percentage drop since July 2 and left the index with a meager gain of 0.005 percent for the month.
The broader S&P 500 index fell 29.92, or 2.8 percent, to 1,036.19, its biggest percentage loss since July 2. The Nasdaq dropped 52.44, or 2.5 percent, to 2,045.11.
Six stocks fell for every one that rose on the New York Stock Exchange, a virtual reversal of the tide that swept stocks higher Thursday when the government said the economy grew faster than expected in the summer.
Indicators of investor skittishness surged. The Chicago Board Options Exchange's Volatility Index, known as the market's fear gauge, soared 23 percent to its highest level since July.
Stocks began skidding after the Labor Department said personal spending fell 0.5 percent in September. The drop was in line with forecasts, but it was also 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 government also said that personal income, the fuel for future spending, was flat in September compared with August.
A drop in the mood of consumers added to the day's bad news. The Reuters/University of Michigan consumer sentiment index fell to 70.6 in October from 73.5 in September. The reading was revised higher from an early estimate and was roughly in line with expectations.
"Until we get to better employment numbers, it's hard to get real income growth and real spending ... and we're just not there yet," said Kurt Karl, chief US economist at Swiss Re.
Friday was the end of the fiscal year for many mutual funds. Fund managers often sell some investments to minimize taxes for shareholders.
Bank stocks were hardest hit as traders worried about the fate of commercial lender CIT Group Inc. Billionaire investor and bondholder Carl Icahn agreed to support the company's restructuring plan and provide it with a $1 billion line of credit, but investors are still worried that the company could file for bankruptcy protection. The stock tumbled 24 percent.
Citigroup fell 22 cents, or 5.1 percent, to $4.09 after a CLSA analyst warned that the bank would write down as much as $10 billion in its fourth quarter.
Bank of America Corp. lost $1.15, or 7.3 percent, to $14.58. It was the biggest decliner among the Dow industrials. All 30 Dow stocks fell.
For the week, the Dow lost 2.6 percent, its worst drop since mid-June. The S&P 500 index fell 4 percent, its biggest slide since mid-May. It lost 2 percent for October but is still up 53.2 percent from a 12-year low in March.
The Nasdaq fell 5.1 percent for the week and 3.6 percent for October.
On the New York Mercantile Exchange, gold fell, while oil tumbled $2.38 to $77.49 a barrel.
Bond prices surged, pushing their yields lower. The yield on the benchmark 10-year Treasury note fell to 3.39 percent from 3.50 percent late Thursday.
Stocks have lost ground the past two weeks as worries about the economy escalated. Without stronger evidence that the labor market is improving and consumers are feeling more comfortable about spending, investors will likely have trouble extending the market's gains.
Trading is likely to remain volatile in the coming week amid a flood of major economic news, including the Institute of Supply Management's readings on the manufacturing and services industries, sales reports from major retailers and the Labor Department's October employment report – arguably the month's most important piece of economic data. The Federal Reserve will convene a two-day policy meeting Tuesday.
Consolidated volume at the New York Stock Exchange came to 6.8 billion shares compared with 5.7 billion Thursday.
In other trading, the Russell 2000 index of smaller companies fell 17.45, or 3 percent, to 562.77.
Overseas, Britain's FTSE 100 fell 1.8 percent, Germany's DAX index dropped 3.1 percent, and France's CAC-40 lost 2.9 percent. Japan's Nikkei stock average rose 1.5 percent.
The Dow Jones industrial average closed the week down 259.45, or 2.6 percent, at 9,712.73. The Standard & Poor's 500 index fell 43.41, or 4 percent, to 1,036.19. The Nasdaq composite index fell 109.36, or 5.1 percent, to 2,045.11.
The Russell 2000 index, which tracks the performance of small company stocks, fell 38.09, or 6.3 percent, for the week to 562.77.
The Dow Jones U.S. Total Stock Market Index – which measures nearly all U.S.-based companies – ended at 10.521.58, down 487.01, or 4.4 percent.