Stocks Drop to 2010 Low as Consumer Confidence Dives

A surprise plunge in a key reading of consumer confidence sent U.S. stocks to their lowest close of 2010, while the blue-chip Dow fell well below the 10,000 level. Again.

Asian shares were clobbered overnight amid worries that China's economy may be cooling off, while European stocks sold off over anxiety about the stability of the Continent's financial system. By the time The Conference Board released its latest consumer confidence numbers, U.S. equities never had a chance.

The flight from risk to safety chopped 268 points, or 2.6%, off the Dow Jones Industrial Average ($INDU), sending it to 9,870, it's lowest close since June 7. The Dow is now down nearly 6% for the year. The broader S&P 500 ($INX) fell 33 points, or 3.1%, to 1,041, its lowest close of 2010. By that measure, the market is off 7% on the year. The more volatile, tech-heavy Nasdaq Composite ($COMPX) shed 85 points, or 3.9%, to 2,135. The Nasdaq is now down 6% in 2010.

Americans' rising concern about the state of the economy and job market helped trigger a plunge in consumer confidence in June, with the index falling to 52.9 from a revised 62.7 in May, The Conference Board said Tuesday. A Bloomberg survey had expected the index to remain unchanged in June. The index was at 57.9 in April. It hit a record low of 25.3 in April 2009.

"Churning and Grinding" Ahead

Every index component dropped in June, and one can clearly see what's weighing on the minds of consumers: The woeful job market. Those saying jobs are "hard to get" increased to 44.8% in June from 43.9% in May, while those claiming jobs are "plentiful" decreased to 4.3% from 4.6%.

Risk aversion could best be seen in the bond market, where the yield on the two-year Treasury hit a record low of 0.59%, while the yield on the 10-year Treasury broke below 3%. The dollar and the yen rallied, while the euro plunged.

"We view today's action as clear re-emergence of the parallel to the Fall of 2008, with the markets showing need of applying their discounting mechanisms across asset classes in what is perceived to be a new order of austerity overwhelming growth ahead," John Stoltzfus, market strategist at Ticonderoga Securities, told clients Tuesday.

"While markets and their participants arrive at a new read or determination for a new order, the markets will be prone to rallies followed by pullbacks followed by rallies followed by pullbacks, with churning and grinding in between," Stoltzfus wrote.

The U.S. economy has been though the wringer over the past couple of years, and Gary Shilling, president of A. Gary Shilling & Co., says things aren't going to improve any time soon. (For more on Shilling's views, see video below.)