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Analysts not surprised by pullback, which left major indexes down by 2 percent.
NEW YORK — A stock market ripe for a big pullback succumbed Tuesday, plunging when rumors of a bank failure revived investors’ anxiety about the banking industry and the economy as a whole.
A batch of economic reports that just weren’t good enough added to the mix as the major indexes all fell about 2 percent. Treasury prices, usually the beneficiary of a slide in stocks, ended only moderately higher.
A break in the market’s rally was widely expected because pressure to sell has been building for some time. Analysts warned that investors were doubting whether they should have bid stocks so high in the rally that began six months ago.
So it wasn’t surprising that, after the Dow was up 60 points in response to a seemingly better-than-expected reading on manufacturing, something like a rumor about a possible bank failure could take the market down.
“Some time midmorning, rumors came out that a large bank could be in trouble,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research.
“That’s all it takes to spook this market,” Detrick added.
Sept. traditionally weak
Dan Deming, a trader with Strutland Equities in Chicago, said, “The first day of September — the market shows some weakness and then it just kind of starts to feed on itself.”
Many investors had some fear of what might happen in September, which historically has been the worst month for stocks.
Many analysts said the change in calendar was one of many factors that created a critical mass of sorts for the market and fueled Tuesday’s drop.
Banks and insurance companies were among the most notable losers amid the fears of bank failures.
But they also had been pumped up the most in the rally that lifted the market more than 50 percent since hitting 12-year lows in March.
The plunge in stocks came even as the Institute for Supply Management reported that U.S. manufacturing grew in August for the first time since January 2008.
The market also shrugged off another positive economic report, the sixth straight monthly increase in pending home sales.
On the surface, the day’s economic numbers were good. A deeper look at the data gave some cause for concern.
Analysts said both the manufacturing and housing reports got a boost from government stimulus efforts, including the Cash for Clunkers program that has since expired, which means the recovery in those industries may not continue at the same pace.
“In both cases it seems headlines overstate details by a touch,” said Tom di Galoma, head of U.S. rates trading at Guggenheim Capital Markets LLC. “People reviewed the numbers and said this type of demand is just not sustainable.”