Ugly Kick-Off to September: Dow Dives 186

After notching its best August in nearly a decade, Wall Street started the historically bearish month of September on a disappointing note as the Dow tumbled nearly 200 points Tuesday despite new evidence the economy is slowly healing.

The bank-led selloff marked the steepest one-day decline for the Dow since Aug. 17 and its first three-day losing streak since June 24. The benchmark index has tumbled 2.82% over that span, its worst stretch since July 7. It's also worth noting the S&P 500 and Nasdaq Composite broke through the psychologically-important levels of 1000 and 2000 respectively.

Even some bullish analysts had long been calling for a pause or a correction after stocks’ summer surge. They pointed to an economy that is still weak, the longest win streak since 2007 for the Dow and the 3,000-point climb off the March lows.

“It’s not that the market is going back to the March lows but there’s no question it got ahead of itself,” noted NYSE trader Ted Weisberg of Seaport Securities

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The Dow Jones Industrial Average lost 185.68 points, or 1.96%, to 9310.60, the Standard & Poor's 500 slid 22.58 points, or 2.21%, to 998.04 and the Nasdaq Composite tumbled 40.17 points, or 2%, to 1968.89.

The wave of selling on Wall Street was led by the financial sector and came in the face of a pair of better-than-expected economic reports that revealed the sharpest increase in pending home sales since June 2007 and the first expansion in the U.S. manufacturing sector in nearly two years. After initially cheering those reports, the markets headed south and didn’t look back.

“While there is nothing negative about the data, I think it’s more market sentiment driving stocks’ direction,” said Michael James, senior equities trader at Wedbush Morgan Securities. “There are far more people looking to sell stocks than buy stocks, which is a change in sentiment from the last several weeks.”

Oil prices fall as Dow stumbles
Oil prices dipped again Tuesday despite new indications that the U.S. manufacturing and housing industries may be on the mend. Benchmark crude for October delivery fell $1.91 to settle at $68.05 a barrel on the New York Mercantile Exchange. The contract Monday lost $2.78 to settle at $69.96, meaning crude has fallen almost 6 percent this week

On Tuesday, however, it appeared energy prices were rebounding but the bounce in energy prices Tuesday was short-lived and both equity and energy markets reversed course before noon.

"The question is the sustainability," said an oil dealer. Another possible reason for the volatile prices Tuesday is the low volume on the floor of the Nymex. It is typical for futures prices to swing in the week before a holiday and some traders said there was nothing to be read into falling prices before the Labor Day weekend begins.

In London, Brent crude fell $1.92 to settle at $67.73.