Stocks and interest rates tumbled Tuesday after signs of slowing economies from China to the U.S. spooked traders who were already uneasy about a global recovery.
The Dow Jones industrial average fell 268 points, or 2.7 percent, and dropped below 10,000. The benchmark Standard & Poor's 500 index closed at its lowest level since October.
Interest rates fell in the Treasury market after demand for the safety of government debt grew. The yield on the 10-year note dropped to as low as 2.96 percent, the first time it has fallen below 3 percent since April 2009. The yield is used as a benchmark for many consumer loans and mortgages.
The markets began the day by following Asian and European markets lower. Asian stocks fell after an index that forecasts economic activity for China was revised lower. European indexes continued the slide after Greek workers walked off the job to protest steep budget cuts.
Then, shortly after U.S. trading began, the market was hit with news that. The Conference Board's Consumer Confidence Index fell to 52.9 from a revised 62.7 in May. It was the steepest drop since February and economists polled by Thomson Reuters had forecast only a modest dip.
Companies have indicated that business is getting better, yet there are few signs they are ready to hire in big numbers. The Labor Department's monthly employment report due Friday is expected to show the unemployment rate rose 0.1 percentage point to 9.8 percent in June.
Industrial stocks suffered some of the steepest drops on fears that a stalled global rebound will cut demand. Aircraft maker Boeing Co. led the Dow lower with a drop of 6.3 percent. Caterpillar Inc., the maker of construction and mining equipment, lost 5.5 percent. Shares of coal producers pulled energy stocks lower on worries about a slowdown.
Investors have been so burned by the financial crisis of 2008-09 that they fear any hint of a slowdown means the economy will start tanking again. And they're selling heavily at the end of the day, fearful about negative economic news that could start coming out of Asia just hours after U.S. trading ends.
Paul Zemsky, head of asset allocation at ING Investment Management in New York, said investors are wrestling with two opposing ideas of where the economy is headed. He said the more likely case is that the recovery continues and corporate earnings growth make stocks look cheap right now. The darker scenario is that government budget cuts, the end of fiscal stimulus, problems in Europe and a slowdown in China lead to a double-dip in the global economy.
Investors' indecision and uneven economic reports have brought big swings to stocks since late April when debt problems in Greece began to pound world markets.
"The central issue that any investor faces today is fire or ice," Zemsky said. "There's no in-between. It's either one or the other."
According to preliminary calculations, the Dow fell 268.22, or 2.7 percent, to 9,870.30, its lowest close since June 9.
The Standard & Poor's 500 index fell 33.33, or 3.1 percent, to 1,041.24. It was the lowest close for the S&P since Oct. 5. The Nasdaq composite index fell 85.47, or 3.9 percent, to 2,135.18.