Stock market slides again; worst two-week start to a year

Never before has Wall Street gotten off to a worse start to a year.

The stock market capped the first two weeks of 2016 with a steep slide Friday that sent the Dow Jones industrial average down nearly 400 points.

All three major stock indexes – the Dow, the Nasdaq composite and the Standard & Poor’s 500 – are now in what’s known as a correction, or a drop of 10 percent or more from their recent peaks.

The market has been on a stomach-churning ride since the start of the year, wrenched up – but mostly down – because of alarm over a slowdown in China and the plunging price of oil to its lowest level in 12 years. Investors already are seeing damage to U.S. corporate profits, particularly at energy companies.

The Dow slid 390.97 points, or 2.4 percent, to 15,988.08. The average had been down more than 500 points early in the afternoon. The S&P 500 ended down 41.51 points, or 2.2 percent, at 1,880.33. The Nasdaq dropped 126.59 points, or 2.7 percent, to 4,488.42.

The Dow and S&P 500 have now fallen about 8 percent this year, while the Nasdaq is off about 10 percent.

“Oil is the root cause of today,” said Dan Farley, regional investment strategist at the Private Client Reserve at U.S. Bank. “People are uncertain, and when they’re uncertain they’re scared.”

Crude oil has dropped below $30 a barrel from a high of over $100 during summer 2014, eviscerating energy company profits. On Friday, Williams Cos. led a slide among oil, gas and mining companies, falling $2.19, or 12 percent, to $16.10.

Investors also got some discouraging economic news on Friday: The Federal Reserve said U.S. industrial production, which includes manufacturing, mining and utilities, dropped in December for the third month in a row. And another government report indicated U.S. retail sales dipped last month.

Many investors had welcomed the new year with fairly high hopes. They expected oil prices would stabilize. After a market correction in August, few forecast it would happen again so soon. And the Federal Reserve’s move in December to raise interest rates for the first time in nearly 10 years signaled to many that the U.S. economy was healthy.

“The hope was global growth would stabilize, and early in 2016 here, that has been a disappointment, too,” said David Chalupnik, head of equities at Nuveen Asset Management.

If the market turmoil trend continues, economists said it could rattle consumer confidence. That could lead them to spend less, which in turn could hurt business growth and investment.

“Volatility, constant headlines about increased risk of recession and a slowing global economy is going to make the average American very nervous,” said Lindsey M. Piegza, chief economist at brokerage firm Stifel Nicolaus & Co.

She expects the U.S. economy will grow at about the same 2 percent rate this year as it did last year.

The risk of recession this year is at a low 15 percent, but those forecasts could change if the volatility continues, she said.

“It’s going to be very difficult for the economy to punch out even 2 percent (growth) if we don’t see the consumer happy, healthy and out in the marketplace spending,” Piegza said.

Consumer confidence so far this month is up slightly from December, according to preliminary data released Friday from Thomson Reuters and the University of Michigan.

But economists said it’s too soon for the effects of the market volatility to hit consumers.

“The fundamentals driving consumer spending and housing are intact,” said Gary Schlossberg, senior economist at Wells Capital Management, noting low gas prices and recent signs of wage growth. “But when you see the turmoil, that could have an unnerving effect.”

The Los Angeles Times contributed to this report.