NEW YORK — Investors are finding out what everybody else already knew: The consumer isn't going to spend the economy into recovery.
Major U.S. stocks indexes tumbled by the biggest amount in six weeks Monday as investors grew worried that they have been too quick to bet on an economic rebound during the market's five-month rally. Overseas markets and commodities plunged, and demand for safe-haven investments sent the dollar and Treasury prices shooting higher.
The Dow Jones industrial average skidded 186 points, and all the major indexes fell at least 2 percent. The Nasdaq composite index was hardest hit, dropping 2.8 percent, but it also had the biggest advance this year.
A shudder in China's main stock market touched off a wave of selling that spread to Europe and then the U.S. A slide in quarterly profits at home-improvement retailer Lowe's added to worries that an improvement in the economy is far off.
Joe Saluzzi, co-head of equity trading at Themis Trading, said the selling was warranted. "The economics obviously don't support where we've been," he said.
The slide was steep but felt more controlled than the plunges of the past year because stocks ended off of their worst levels and because analysts have been calling for a retreat after the Dow and Standard & Poor's 500 index raced up 15 percent in only five weeks.
The Shanghai stock market tumbled 5.8 percent Monday as investors worried that the Chinese government would tighten bank lending policies. Investors outside China have been hoping that strengthening there would spill over to other economies.
Worries grew when Lowe's said consumers are putting off big purchases. That's troubling because consumer spending accounts for more than two-thirds of U.S. economic activity.
Some investors used to seeing a quick bounce-back in stocks have underestimated how difficult the recovery could be, even though many analysts have warned that it could take well into 2010 for the economy to regain strength. And some traders seem to be in the same mindset as three years ago, willing to take big chances even when there's little to justify a huge advance.
Now, with consumers facing high unemployment, weak home prices and mounds of debt, investors are worrying that they had grown too optimistic even though the stock market tends to improve before the economy after a recession.
Quincy Krosby, market strategist for Prudential Financial, said some investors are worried that weakness among consumers will hold the economy back.
"Those who are negative say you are not going to see consumers loosen those purse strings in any meaningful way," she said.
The Dow fell 186.06, or 2 percent, to 9,135.34, its lowest close since July 29. The Dow had been down almost 205 points at its low of the day.
The broader S&P 500 index, which is the basis for many investments such as mutual funds, fell 24.36, or 2.4 percent, to 979.73. Last week it was up 49.7 percent from a 12-year low of 676 in early March.
The Nasdaq fell 54.68, or 2.8 percent, to 1,930.84.
Many analysts say stocks have piled on gains too quickly.
"We have come an awful long way. To not expect a sell-off after the degree of increase -- I think you're dreaming," said John Merrill, chief investment officer of Tanglewood Wealth Management in Houston.
The Chicago Board Options Exchange's Volatility Index, also known as the market's fear index, surged 14.9 percent, its biggest one-day increase since April. The VIX stands at 27.9 and is down 30 percent in 2009. Its historical average is 18-20. It hit a record 89.5 in October at the height of the financial crisis.
Overseas, Japan's Nikkei stock average fell 3.1 percent. Britain's FTSE 100 fell 1.5 percent, Germany's DAX index lost 2 percent, and France's CAC-40 fell 2.2 percent.