The Standard & Poor's 500-stock index posted its biggest intraday drop of the year Tuesday as escalating tensions in the Middle East and North Africa sent oil prices soaring.
The S&P 500 fell 1.8%, to 1319 on Tuesday, its biggest intraday point drop since Aug. 11, 2010. It was the measure's biggest percentage drop since Oct. 19, 2010. Traders noted that the market's losses deepened after the S&P 500 fell through support at the 1324 level.
Brent rose and U.S. crude oil reached a 2-1/2 year high on concerns the revolt in Libya could spread to other major oil producers as companies suspended operations and ports were disrupted. Video courtesy of Reuters.
The Dow Jones Industrial Average sank 161 points, or 1.3%, to 12230. At its lows of the day, the Dow had its biggest intraday point drop since Nov. 16 and its biggest percent drop since Jan. 28, when news of unrest in Egypt spooked investors.
Energy components were among the measure's few positive stocks as oil prices surged. Chevron gained 2.1%, while Exxon Mobil rose 1%.
The Nasdaq Composite sank 2.3% to 2768.
Global stock markets extended Monday's declines as violence increased in Libya, a major oil-producing state. Libyan leader Col. Moammar Gadhafi publicly defied protesters seeking to end his rule, vowing to remain in the country "until the end" in a televised speech that showed his determination to cling to power Tuesday, as reinforcements of loyal armed military units tightened their hold around the capital. Libyan traders said the country had shut all ports, which would reopen in two to three days.
U.S. markets were closed Monday for the Presidents Day holiday. Crude-oil prices jumped as unease over the turmoil in Libya and parts of the Middle East mounted. Libya produces 1.8 million barrels of oil daily, and its 41 billion barrels of proven reserves represent more than 3% of global supplies. Nymex oil prices for March delivery were up 6% over Friday's close.
Investors said the U.S. stock market had been ready for a correction, as major stock indexes had risen for 16 of the past 20 sessions to reach 2½-year highs on Friday. The geopolitical tensions in the Middle East and North Africa gave nervous traders reason to retreat, said Liz Miller, president of Summit Place Financial Advisors.
"The unrest in the Middle East has ended up to be that trigger, but any number of things could've been that trigger," she said. She cautioned that if oil prices do remain elevated, "that's a real concern in an economy that seemed to be gaining some strength."
But Tuesday's tumble came as a relief to some market participants unnerved by the market's recent unrelenting climb, even in the face of earlier unrest in Egypt.
"When the market starts shrugging off geopolitical issues and ignoring it completely, it's cause for concern," said Jennifer Ellison, principal at Bingham, Osborn & Scarborough. "It's a positive that we're getting some sort of reality check in the market here."
Asian markets suffered sharp losses, also hurt by a major earthquake in New Zealand and a move by Moody's Investor Service to cut the outlook on Japan's "Aa2" rating to "negative" from "stable."
World stocks fell Tuesday as a growing revolt in Libya drove oil prices to 30-month highs.