Stocks’ Worst Day Of Year Sends Dow Below 14,000

U.S. stocks fell about 1% Monday in their worst drop of the year, as uncertainty over Europe rattled investors and pushed Spanish bond yields higher.

The Dow Jones Industrial Average ended down 129.71 points, or 0.9%, at 13,880.08. On Friday, it had closed above 14,000 for the first time since October 2007. Only one out of the Dow average’s 30 components — Boeing Co.  — ended higher on Monday.

While Europe emerging again as an issue for global markets, including Wall Street, analysts for weeks have been saying that a correction or even a pullback of 3% to 5% would be welcome. January’s more than 5% advance, which pushed equities to five-year highs, is seen as an unsustainable trend, and a retreat would draw in sidelined money.

Elliott Spar, market strategist at Stifel, Nicolaus & Co., put it this way: “The book of excuses has been opened wide this morning in trying to explain this selloff. It goes from European political issues, higher rates on European peripheral debt to the Ravens winning the Super Bowl. How about this: The market was long overdue for a pullback, and buying every dip was just making it too easy for everyone to make a fast buck.”

The S&P 500 Index  ended down 17.46 points, or 1.2%, at 1,495.71. On Friday it had closed at its highest since December 2007.

On Monday, all 10 S&P 500 industry groups were in the red, led by losses in tech and financial stocks. McGraw-Hill Cos.  and Moody’s Corp.  were the worst performers, off more than 10% each, after Standard & Poor’s Ratings Services said the Justice Department was planning to file civil charges for its role in rating certain mortgage-bond securities in 2007.

The Nasdaq Composite Index  shed 47.93 points, or 1.5%, at 3,131.17.

For every share that rose, nearly four fell on the New York Stock Exchange, where 693 million shares traded. Composite volume topped 3.3 billion.

 

“We had a heck of a run, but you can see the spillover from Europe today, and we’re back to the same old story, with Italian and Spanish yields in particular spooking European markets,” said Bill Stone, chief investment strategist at PNC Asset Management Group.

In Spain, Prime Minister Mariano Rajoy is mired in a corruption scandal amid calls for his resignation from the opposition Socialist Party. Yields on Spain’s 10-year government notes surged to above 5%.

Reforms implemented in Italy are viewed as at risk by the increasing popularity of Silvio Berlusconi, with the former prime minister a contender in general elections slated for later in the month.

Stocks held sharp losses after the Commerce Department reported factory orders rose a less-than-forecast 1.8% in December, illustrating a decline in nondurable goods that overcame advances in computers and construction equipment.

Herbalife Ltd.  ended up 1.3% after falling as much as 12%. The supplement distributor said in a statement that it was demanding a correction from the New York Post after the newspaper reported the Federal Trade Commission was investigating it. Late last year, hedge-fund manager Bill Ackman said he was betting against the stock, calling Herbalife a pyramid scheme. See The Tell: Herbalife slumps on report of federal probe (but rebounds as company denies).

Reduced ratings

Wal-Mart Stores Inc.  shares fell 1.2% after J.P. Morgan Chase downgraded the discount retailer to neutral from overweight.

Chevron Corp.   shed 1.1% after UBS AG downgraded the oil producer to neutral from buy.

Merck & Co.   declined 2.3% after Morgan Stanley cut the pharmaceutical firm to underweight from equal weight.

Oracle Corp.  slid 3% after the business-software maker said it would buy Acme Packet Inc.  for $1.7 billion. Acme Packet shares jumped 24%.