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Stocks Tumble 2%; VIX Soars

The correction may finally be starting: Stocks plunged more than 2 percent Monday as traders cashed in on some of the gains from the four-week rally.

Stock weakness was being felt across the board, with the price on the 30-year treasury bond gaining more than 1 point and oil dropping below $66 a barrel to its lowest price for August.

Further evidence of the investors' jitters: The VIX, the best gauge of fear in the market, shot up more than 15 percent, topping 28.

Many investors apparently feel it's time to take at least some profits after the S&P 500 rose about 50 percent from its March 9 low. the major indexes were showing a drop of about 2 percent at the opening.

This could be the beginning of a correction, some market pros said.

"“There’s no basic foundation for the run-up we’ve had, been far too rapid," Dan Deighan, founder of Deighan Financial Advisors, told CNBC. He predicts we're going to see a 25 to 50 percent dropin the market — and it's going to be fast.

Signs of a correction started last week, when stocks snapped a four-week rally that had pumped up the Dow by 15 percent amid talk that the market may have gotten ahead of itself.

In the morning's economic news, the New York Fed reported its measure of manufacturing activity in the region moved into positive territory— signaling growth — for the first time since April 2007.

But traders weren't having it and stocks tumbled out of the gate.

Financials sold off as several companies, including Bank of America and Capital One , said credit-card defaults rose in July.

Throughout the day, credit-card issuers will be out with their monthly "master trust" data, which provide up-to-date numbers on delinquencies for each issuer.

The market was also buzzing about the Fed's decision to extend the TALF another six months, which means through June 2010, as the credit market remains "impaired."

Lowe's, the number two home improvement retailer, added to the market's poor mood after reporting its profit plunged 19 percent, much worse than estimates. Shares skidded 10 percent.

The poor results from Lowe's spread; competitor Home Depot , which reports Tuesday, also saw its shares slide.

Shares of BJ's Wholesale Club fell after J.P. Morgan Securities downgraded the stock to "neutral" from "overweight."

Retail has been in the spotlight after a disappointing retail-sales report from the government last week and investors look to the back-to-school shopping season for indications of how the economy is doing.

Health care stocks could be worth watching, as the Obama Administration signals that it may be ready to give up the idea of a public option for people seeking health insurance.

Still to come: The National Association of Home Builders issues its Housing Market Index at 1 pm ET, which measures sentiment in the home building industry.

- Peter Schacknow contributed to this report.

On Tap for Next Week:

MONDAY: NAB housing-market index
TUESDAY: Housing starts; PPI; Earnings from Home Depot, Saks, Target, TJX, HP and Analog Devices
WEDNESDAY: Weekly mortgage applications; weekly crude inventories; Earnings from Deere, Limited
THURSDAY: Weekly jobless claims; leading indicators; Philly Fed survey; Earnings from Gamestop, Hormel, and Sears
FRIDAY: Existing-home sales; Earnings from JM Smucker

Send comments to cindy.perman@nbcuni.com.