The stock market slumped as it opened the first trading session after the Labor Day holiday, with investors focusing on fresh concerns about the health of European banks.
In part, investors latched onto less-than-encouraging reports out of Europe amid a dearth of other big financial news.
In the past six months, US and European stocks have moved more or less in lock step. Both markets fell in April and May as concerns about possible sovereign defaults by nations such as Greece roiled European markets. Both have recovered some ground in up-and-down trading since then, in part because investors have been reassured that Eurozone governments are moving to mitigate the risk of crisis in Europe's banking system.
The latest news doesn't necessarily change that outlook but is a reminder of the hurdles ahead. Europe's banks may need to raise more capital as a result of recent "stress tests" by regulators, the German newspaper Die Zeit said in a report citing leaked official documents. Banks in the Eurozone have significant holdings of European sovereign debt. Meanwhile, The Wall Street Journal reported that the stress tests may have underestimated the risky exposures of European banks.
European markets fell Tuesday, and the US followed suit, at least in the early part of the trading session.
On Wall Street, reports about new economic stimulus proposals from President Obama failed to offset the negative news out of Europe. With congressional elections drawing near and the job market weak, the White House is proposing $50 billion in new federal spending on infrastructure projects such as roads and airports.
And on Wednesday, the president is expected to call for some $200 billion in tax incentives designed to spur business investment.
The dip in stocks comes at a volatile time. US stocks performed poorly in August, then kicked off September with a modest rebound. Both Europe and the US have economies that appear to be growing, but not with much vigor. In its July forecast, the International Monetary Fund predicted the US economy will grow by 2.9 percent next year, and Europe by 1.3 percent.