Behind the Dow's Big Drop

A few things to remember about the Dow's 3 percent drop on Super Tuesday:

The Institute for Supply Management's nonmanufacturing index doesn't usually get this kind of buzz. It's both volatile and less closely watched than its factory-sector counterpart—plus, it's a survey rather than hard numbers like durable-goods orders, which have held up better. That's not to say the massive, contraction-signaling drop in the index to 41.9 from 54.4 shouldn't have kicked off a round of recession calls and hand-wringing. But in less jittery markets, traders normally cast barely a glance at the "ISM-non."

The Fed let loose the "R" word. Richmond Federal Reserve President Jeffrey Lacker said he could "see the possibility of a mild recession, similar to the last two we have experienced—in other words, shallow and with a slow recovery," but nothing like more severe recessions in 1982 or 1974. It's the first real recession threat call by a Fed official, and Lacker's opinion counts because he's been among the most ardent inflation fighters at the Fed. Basically, the thinking goes that if Lacker is willing to cut rates even further, the Fed must believe the economy is in poor shape—even after slashing rates by a huge 1¼ percentage points over eight days in late January. (Text of Lacker's speech: RichmondFed.org)

Don't let the bad news distract you from the other bad news. Lastly, remember this, just in case the rest of the bad news is too distracting: The fuse that touched off all of Wall Street's problems—falling home prices—is still burning away. Check out this ugly chart roundup care of Bespoke Investments. It's home price growth in the Case/Shiller home price index. Can you spot a bottom?