Stocks Slide Amid Weakening Consumer Confidence, Sagging Home Sales and Interest Rate Fears

Stocks plunged Tuesday as waning consumer confidence signaled a recession, home sales took an unexpected dip and investors took heed of interest rate warnings.

The Dow Jones Industrial Average was down more than 400 points during the day's trading session. It finished down 388.26, or 1.14%, and the S&P 500 Index fell 1.47%, sliding below the 4,300 mark for the first time since June. The Nasdaq Composite was down 1.57%.

Investors are worried that the Federal Reserve's monetary policy could keep interest rates higher for longer than initially expected.

"The market doesn't like what it sees ahead," said Jamie Cox, managing partner for Harris Financial Group in Richmond, Va. "The juxtaposition of slowing growth and the persistence of overly tight, and potentially getting tighter, monetary policy is a major obstacle for buyers right now."

The Conference Board's Consumer Confidence Index dropped to 103 in September, below the 105.5 economists were expecting, according to consensus estimates from Dow Jones. And the board's expectations index, declined to 73.7, well-below 80, a reading that has historically signaled a recession.

On another front, JPMorgan Chase CEO Jamie Dimon warned interest rates could rise as high as 7% to combat sticky inflation.

Investors are also concerned about a quadruple whammy that could drag on the economy between a looming government shutdown, the autoworkers strike, the resumption of of student loan payments, rising oil prices.

"September is historically the worst month of the year for markets," said Fred Taylor, managing director and partner at Beacon Pointe Advisors' Denver Office. "This September has been no exception."

The Nasdaq Composite is down more than 6%, the S&P 500 is down 4% and the Dow is down 2% for the month, so far.

"The higher for longer scenario outlined by the Federal Reserve last week ... is a huge negative for the stock market in the short run," Taylor said. "Throw in a government shutdown, a UAW strike, and student loan payments starting up again, there are not a lot of positive catalysts."

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance in Charlotte, N.C., said that "today's price action – and that of the entire month – has been bearish, with investors on edge heading into the fall, fully aware that the Fed doesn’t have their back, said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance in Charlotte, N.C.

The Fed is "more worried about fighting inflation then they are concerned about coming to the rescue if the economy falters," he added.