Dow down 296; oil off 5.5% and back below $30
Stocks fell sharply Tuesday, with the Dow down almost 300 points, after another sell-off in the oil patch put energy shares on the defensive and risk-taking on hold in what has been a difficult start to 2016.
Increasingly, the trading motto on Wall Street is "as oil goes, so goes the U.S. stock market." And the correlation between the falling price of U.S.-produced crude and a stock market in the red is intact yet again Tuesday. "Since the start of the year, there has been a 97% correlation
between oil and equity prices," Bruce Bittles, chief investment strategist at R.W. Baird, noted in a report.
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A barrel of West Texas Intermediate crude was down $1.74, or 5.5%, to $29.88 a barrel, and that pressured Dow components Exxon Mobil (XOM), which was 2.2% lower after topping a depressed earnings forecast, and Chevron (CVX), which was off 4.8%.
The fall in oil prices has resumed as hopes for coordinated production cuts from leading oil producers fades.
The weakness in Exxon Mobil and Chevron weighed on the 30-stock Dow, which closed down 296 points, or 1.8%, at 16,154. The benchmark Standard & Poor's 500 index was 1.9% lower and the Nasdaq composite dropped 2.2%.
"Markets are (back) in risk-off mode," Cagdas Aksu of Barclays told clients in an early morning report.
The slow start to the year persists on Wall Street, following the worst January for the Dow and S&P 500 since 2009 during the financial crisis. Stocks tread water on the first day of February with the Dow and S&P 500 down fractionally and the Nasdaq ekeing out a small gain.
After today's drop, the Dow is off 7.3% for 2016, the Nasdaq is down 9.8% and the S&P 500 if off 6.9%. Also, all three indexes are back in correction territory, meaning they are off more than 10% from their record closes last year. The S&P had been out of correction territory for two trading sessions following a big rally on Friday.
It won't be easy for the market to break out of its doldrums until the persistent headwinds abate, such as economic problems in China, volatile oil prices and a too strong dollar, argues Tom Stringfellow, chief investment officer at Frost Investment Advisors.
"Unfortunately, until there is some stabilization in oil prices, China resolves its 'monetary flight', the dollar solves its 'dollar-might', and investors back off their recession fears, the drivers for any market bounce are fairly limited and emotionally based," Stringfellow noted via e-mail.
The fourth-quarter earnings season continued today with reports before the bell from Exxon Mobil, drug giant Pfizer(PFE) and package delivery player UPS(UPS). After the bell restaurant chain Chipotle (CMG) and search engine Yahoo (YHOO) report earnings.
Lower oil prices dragged down stock prices in Europe, as well. The broad Stoxx Europe 600 was down 1.9%. The German DAX was off 1.8% and the CAC 40 in Paris was 2.5% lower.
Shares were mixed in Asia, with the Shanghai composite in mainland China up 2.3% and the Hang Seng index in Hong Kong down 0.8%. In Japan, the Nikkei 225 closed down 0.6%, ending a recent rally jumpstarted by last week's surprise interest rate cut by the Bank of Japan.
Adam Shell on Twitter: @adamshell.