Investors channeled cash into less risky assets as doubts resurfaced over the political will of Italy and Greece to push through tough budget measures and as Germany hardened its stand against providing more aid. The worries over the European debt crisis renewed fears that the global economy could fall into recession.
The S&P 500 is now down 14.5 per cent from its highest point in 2011, reached at the end of April. Though investors have periodically taken heart from signs that Europe has carved out a plan to deal with its festering crisis, confidence has been repeatedly walloped every time there is a development showing that the problems have not been solved.
“We have got a shot at trading the S&P under 1,100 again,” said Nick Kalivas, an equity index analyst at MF Global in Chicago. “I don't sense that people are really going to defend the market until something like that occurs.”
A similar pattern of fractured confidence exists in bank stocks. Major US banks were among the biggest decliners on Tuesday, with the KBW Bank index off nearly 2 per cent.
Late on Friday, the Federal Housing Finance Agency sued 17 large US banks over subprime mortgage-backed bonds, compounding fears about the health of the sector.
JPMorgan and Bank of America, both subjects of the suit, fell more than 3 per cent on Tuesday.
The CBOE Volatility Index, or Vix, a measure of expected market turbulence, posted its biggest gain in nearly two weeks, climbing 9.4 per cent to 37.08.
“Right now there is a tremendous amount of uncertainty,” said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
“There is a decent chance that we are in a bear market.”
The Dow Jones industrial average dropped 100.96 points, or 0.90 per cent, to 11,139.30. The Standard & Poor’s 500 Index fell 8.73 points, or 0.74 per cent, to 1,165.24. The Nasdaq Composite Index lost 6.50 points, or 0.26 per cent, to 2,473.83.
Traders are monitoring lows set by major global indexes during the selloff in the first half of August. So far, only Germany’s DAX, down nearly 25 per cent this year, and Japan’s Nikkei have fallen below those levels.