The Dow fell about 130 points, with rising concern that European debt problems are worsening
Richard Drew / AP / File
Most blue-chip components sank, led by Caterpillar and DuPont.
The S&P 500 fell 15.90 points, or 1.19 percent, to close at 1,317.37, while the tech-heavy Nasdaq fell 44.42 points, or 1.6 percent, to close at 2,758.90. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose to nearly 18.
All key S&P 500 sectors fell, led by technology, energy and industrials.
The catalyst for Monday's selloff was news that euro zone debt troubles were getting worse. But investors in the U.S. were also focused on the rise in the dollar and the slide in commodities, ranging from crude oil and precious metals to industrial commodities like cotton, lumber and copper, said James Paulsen, chief investment strategist at Wells Capital Management.
Paulsen has his eye mainly on industrial commodities, and says if "they find a bottom, then you'll see the stock market find a bid again." For that to happen, he added, economic reports in the U.S. will need to turn brighter. The fact initial jobless claims came down last week was a good sign that will need to be repeated this week.
But if the economic reports continue to be bad, then "we’ll be down below 1300," he said, referring to the level of the S&P 500 index.
Monday's market action pushed stocks through some key technical levels. The S&P 500, for instance, traded below 1,320, which was the low on the index last week, noted Andrew Burkly, director of equity strategy research at Brown Brothers Harriman.
"The next significant support level is 1295, that would be the next battle ground," Burkly said. He added that he expects the market to fall through that level to 1,230, his low estimate for the year. For the rest of 2011, Burkly expects the market to remain choppy, and the S&P 500 not to get much higher than 1,350.
But some analysts are more optimistic.
"It's like listening to a pilot say, 'We're approaching turbulence, please put on your safety belt,' Stovall said. "She is not saying, 'Don your parachutes and assemble by the door.'"
Much of Monday's market weakness stemmed from troubles in Europe, which began over the weekend with Standard & Poor’s downgrade of Italy's outlook to "negative" from "stable." Then Spain's ruling Socialist party suffered an election setback.
On Monday, European purchasing managers index data indicated a slowdown in growth in the euro zone, with German and French numbers below expectations. Also, Fitch lowered Belgium's rating outlook to "negative" from "stable."