Stocks Plummet on Manufacturing, Stimulus Blues

Widespread angst over the global pace of recovery from the financial crisis has sent markets into a tumble, with the Dow Jones industrial average plummeting more than 300 points in trading Monday, and the S&P 500 hitting lows not seen since October.

The immediate catalyst for the stock drop was a sharp fall in the U.S. manufacturing ISM index from 56.5 in December to 51.3 in January, reflecting a steep slowdown in growth. The S&P 500 dropped by 2.3 percent after the news was announced to 1741.92 points while the Dow Jones sank 325.92 points to 15,372.93 by closing Monday.

Traders are worried about the Federal Reserve’s taper of its stimulus program, which involves monthly purchases of billions of dollars of mortgage-backed securities and Treasury bonds to prop up the economy. The Federal Reserve has begun reducing its monthly purchases by $10 billion each month, and announced last week it would buy $65 billion of U.S. government debt and mortgage bonds.

Adding to the unease was official Chinese manufacturing data that showed factory output grew at a slower rate in January compared with December, while an HSBC survey showed a contraction in manufacturing in the world’s second-largest economy, according to the Associated Press.

[AP]