Plunging oil prices Monday spooked investors already nervous about weakness in Europe, leading to the biggest one-day drop in stocks in three months.
U.S. crude oil dipped below $50 a barrel for the first time in nearly six years. Coupled with concerns about the outcome of elections in economically ravaged Greece later this month, the news dragged the Dow Jones industrial average down 331.34 points, or 1.9%, to 17,501.65.
The steepest single-day slide since early October comes less than two weeks after the index breached 18,000 for the first time. Other major indexes fell sharply as well.
"What's been essentially a crash in crude has triggered a lot of other moves that have been quite violent," said Ian Winer, head of equity trading at Wedbush Securities in Los Angeles. "The commodity shock is the main culprit here, but everything together is what's doing it."
U.S. crude closed at $50.04 a barrel, down $2.65, or 5% — its lowest point since April 2009. Brent crude, the benchmark for much of the rest of the world, tumbled to a more than five-year low of $53.11 a barrel.
"It's pretty telling that you've got some of the coldest weather you've seen all year, but natural gas is down," Winer said. "You get the sense that there's something bigger going on."
Indeed, further declines appeared to be in store.
Exports from Russia and Iraq are surging, offsetting declines in strife-riddled Libya, analyst Adam Longson at Morgan Stanley in New York said in a note to investors Monday. What's more, he said, reports are emerging of unsold cargoes of oil from West Africa and North Africa, contributing to a global supply glut.
"Much of this crude is moving into storage," Longson said.
In the meantime, despite pressure from Algeria and other members of the Organization of the Petroleum Exporting Countries, Saudi Arabia seems determined not to act to prop up prices.
"The kingdom has stated that production will not be cut even if non-OPEC producers curtail production or oil falls to $20 a barrel," Longson said.
Energy stocks make up 8.9% of the market value of the companies in the Standard & Poor's 500 index, down from 10.9% at the end of June and 28.8% in 1980, said Howard Silverblatt, senior analyst with S&P Dow Jones Indices.
Nonetheless, the downward drag on the S&P 500 remains considerable, as shown by the 22.3% decline of energy stocks in the index since June.
Excluding energy in that time frame, "the S&P 500 would have closed today at 2,080.93, meaning energy has cost the index 2.99% since the end of June," Silverblatt said.
As it was, the S&P 500 dropped 37.62 points, or 1.8% to 2,020.58. The Nasdaq composite fell 74.24 points, or 1.6%, to 4,652.57.
The market declines come as consumers are enjoying what Federal Reserve Chairwoman Janet L. Yellen and others are calling the equivalent of a major tax cut.
Nationwide, the average price of a gallon of gasoline has fallen to $2.199 from $3.317 a year ago, according to the AAA Fuel Gauge report. In California, a gallon costs an average of $2.655, down from $3.667.
Analysts have said that the savings would translate into more consumer spending elsewhere, although Silverblatt said hard evidence of that has yet to emerge.
For now, other businesses are benefiting besides airlines and other transportation companies, which often are squeezed by high fuel costs.
The price of petroleum raw materials for plastics, for example, is falling, enabling big companies like Procter & Gamble and a host of smaller ones to cut some costs and perhaps beat earnings estimates, Silverblatt said.
Too big a drop in oil prices, however, could hurt the economy should energy companies start laying off hundreds of workers and rein in capital spending on plants and equipment, analysts said.
With the glut of oil worldwide, Saudi Arabia so far wants to keep production high to boost jobs in a country with one major industry, Silverblatt said. In the U.S., however, shareholder pressure on companies such as Exxon Mobil Corp. and Chevron Corp. is likely to lead to reductions in capital spending and employment.
Smaller service and specialty energy companies outside of the S&P 500 have seen their share prices fall even further than the oil giants'.
"The jobs of the workers at those companies are in real jeopardy," Silverblatt said. "So lower prices are definitely a double-edged sword."
The oil slide is intertwined with instability in Europe, analysts said.
On Monday, the euro sank to a nine-year low against the dollar, which has been gaining strength for months. Investors are bracing for possible stimulus measures in Europe after European Central Bank President Mario Draghi raised the prospect Friday.
In Greece, politicians began campaigning for a general election Jan. 25 after the nation's parliament last week rejected Prime Minister Antonis Samaras' nominee for president. Polls show the left-wing Syriza party in the lead, sparking investor concerns that a victory could result in Greece abandoning austerity measures and departing the Eurozone.
No nation has ever left the currency bloc, which added Lithuania as its 19th member last week. But new reports suggest that German Chancellor Angela Merkel now believes that a Greek exit would be bearable for the Eurozone.
"Historically, other members have always said that they would resist any country exiting, that it would tear the fabric of the entire Eurozone," said Kate Warne, an investment strategist at Edward Jones in St. Louis.
"Investors are increasingly concerned that this could become a reality, and if a country leaves, no one is quite sure what would happen next," she said.
Nariman Behravesh, chief economist of business research firm IHS in Englewood, Colo., called the situation in Europe "so-so." But he also pointed out that it's not the first time that instability in Greece had markets running scared.
"What would Greece leaving do to the rest of Europe? My guess is not a whole heck of a lot," Behravesh said. "Any contagion will probably be limited. The European Central Bank knows what it needs to do to prevent a meltdown."
He said the effect of the dive in oil prices will be "fairly small" on American companies not in the energy sector. He said he wouldn't be surprised if the stock decline reverses in the near future.
The Dow gained 7.5% over 2014, the Nasdaq rose 13.4% and the S&P 500 advanced 11.4%.
"I understand why the market's worried, but it seems to be a clear overreaction," Behravesh said. "There are jitters, and investors are trying to find an equilibrium where they're comfortable."