(MoneyWatch) Stocks plunged today amid warning signs of a softening job market and weaker than expected factory orders.
The Dow Jones industrial average slumped 216 to 14,960, a loss of 1.4 percent. The broader S&P 500 shed 22 to 1,608, also down 1.4 percent. The Nasdaq Composite fell 43 to 3,401, a plunge of 1.3 percent.
As investors dumped stocks, they moved into the perceived safety of bonds, sending the yield on the benchmark 10-year Treasury bond to 2.10 percent.
Prompting the selling was a slew of downbeat economic news. Payroll provider ADP showed weak gains in hiring by businesses. The payroll manager showed a gain in May of 135,000 jobs, above April's revised total of 113,000 but much lower than the gains ADP reported over the winter. The ADP numbers come as nervous investors await monthly non-farm payroll numbers from the Department of Labor, to be released on Friday.
Factory orders, a statistic released by the Commerce Department, also disappointed: Although orders rose, demand was more tepid than analysts had predicted.
The stock market rally has had many doubters as it continued setting records in April and May. But in recent weeks jitters resurfaced amid mixed messages from the Federal Reserve about a so-called tapering of its financial stimulus, a prime reason for the surge in stock prices over the last few years. Meanwhile, gridlock in Washington has resulted in a clampdown on government spending, with consequent fears that austerity is serving to snuff out a febrile recovery.
"There has been an enormous breakdown between the sky-high stock market and the underlying economy," said Walter Zimmerman, chief technical analyst at the consultancy United-ICAP. He noted that median household income has fallen for more than a decade, a reality that is not captured in government employment statistics that stop counting people who have been out of work for more than two years.
Meanwhile, the market has surged based on monetary stimulus by governments around the world.
"People have been rooting for bearish economic numbers because it means [Fed Chairman Ben] Bernanke will keep easy money flowing," Zimmerman said. "It shows just how bad investment decisions have become. That's why there are all these jitters about what happens if they begin tapering. Nobody can say with any certainty what will happen to the patient after life support is removed. People are used to it and don't want it to go away."
Zimmerman also argued that, were this a robust economic recovery, commodity prices -- everything from copper and steel to oil and lumber -- would be rallying right along with stocks. Instead, commodities have been slumping for the past year. He said he's advising clients to have a clear exit plan from financial markets, based on technical levels for the S&P 500.
"We think the key support is 1,555 -- if that is broken it would seriously damage the bullish case. Where would we have to go to think there is deep trouble? That's 1,515 to 1,490. If that zone around 1,500 is broken it would really derail the bullish pattern. To protect yourself from a bursting bubble, find a support line and evacuate. That line cuts by the end of the month at 1,490. If it takes that out, just evacuate.