Dow plummets 331 as oil drops below $50

Show Caption Hide Caption Dow plummets 331, oil drops: what happened? USA TODAY Money reporter Hadley Malcolm interviews markets reporter John Waggoner about what the huge drop means for the stock exchange.

Stocks suffered their biggest drop in months Monday with the Dow diving about 330 points as crude oil plunged below $50 a barrel and the euro sank to a nine-year low. Major Europe benchmarks ended down as much as 3.3%.

The Dow and S&P 500 ended down 1.9% and 1.8% respectively -- a crushing 331.34-point loss for the Dow. Monday marked the S&P 500's first four-day losing run since 2013. The Nasdaq composite finished 1.6% lower.

"When I see oil prices down 4% and European equity indexes down 1%, 2%, 3%, it's just a sloppy day," says Andy Brooks, vice president and head of equity trading at T. Rowe price.

The S&P 500 shed nearly 38 points to 2020.58 while the Nasdaq lost 74 points to 4652.57. The Dow ended the day at 17,501.65.

The price of a barrel of light, sweet crude oil fell below $50, to $49.97, in electronic trading on the New York Mercantile Exchange. Russian output reached a post-Soviet-era peak, while demand in Europe and elsewhere continued to decline.

Traders are fearful that collapsing oil prices somehow signal the rising risk of a global recession, says Doug Sandler of Riverfront Investment Group. Some fear this kind of extreme move in the price of oil, "is an indicator of recession on the horizon," Sandler says. "We don't believe that. There are plenty of policy tools central bankers can use," Sandler says.

Falling energy prices might seen like a boon for consumers, but it's somewhat of a problem for corporate profit. Operating earnings from the energy sector in the Standard and Poor's 500 stock index fell 26.6% in December 2014 vs. a year earlier, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. That drop, in turn, helped push the S&P 500's operating earnings down 5.6% during the same period.

But it wasn't all energy. "Half the sectors in the S&P 500 are down 2% or more today," says Sam Stovall, chief equity strategist for S&P Capital IQ. The materials sector fell about 3%, and industrials and financials also were hit hard. Holding up better than average: Health care, consumer staples and utilities.

Much of the malaise came from overseas. The euro dropped to $1.19, its lowest value since December, 2005 as a potential election victory for Greece's anti-austerity Syria party has raised concerns Greece won't meet its bailout obligations and will abandon the euro.

"Attention is likely to be on Europe for the next few weeks as investors digest the developments from Greece and what this means for the euro," said Stan Shamu, market strategist at IG in Melbourne, Australia. "Comments made by Greek Prime Minister Samaras suggesting the country's euro membership is on edge heading into the January 25 election and a Der Spiegel report saying Merkel is willing to accept a Greek exit sent the euro lower."

In response to the Der Spiegel report Merkel's spokesman released a statement saying there has been no change in German policy toward Greece, and that Germany still expects Greece to meet the conditions of the bailout.

European markets were lower, with Germany's DAX down 3%, France's CAC-40 down 3.3% and Britain's FTSE 100 2% lower.

In Asia, Japan's Nikkei 225 lost 42.06 points, or 0.2%, to 17,408.71 and Hong Kong's Hang Seng index fell 136.5 points, or 0.6%, to 23,721.32, while the Shanghai composite gained 115.84 points, or 3.6%, to 3,350.52.

Seasonality came into play as well. People tend to sell their big gainers after the New Year, because they won't owe taxes on their gains until April 15, 2016, Brooks says. "When you have a good year, some people hit the sell button in January," he says.

The S&P 500's gain last year was about average, Brooks says. But after the six-week runup that started in November, no one should be surprised that the market sells off in January, he says. "There's not a lot of hysteria in the market right now," Brooks says.

A continued decline in January could be a warning of rough waters ahead, although that indicator has lost its luster recently, says Jeff Hirsch, editor-in-chief of The Stock Trader's Almanac. "January is getting beat up more," he says. For example, the S&P 500 fell 3.6% in January 2014, but the index gained 11.9% last year. Similarly, the S&P 500 fell 8.6% in January 2009, yet soared 23.5% for the year.

The yield on the 10-year Treasury note fell to 2.04%, the lowest since May 2013, according to TradeWeb. For conservative investors, the fall in yields was a relief: Bond prices rise when interest rates fall. The iShares US Treasury 10-Year Bull ETN rose 1.4% Monday.

But while traders might be reading too much into oil prices, there is reason for investors to lower their expectations. Stocks flew higher in 2014 -- and stocks are nowhere as cheap now as there were, Sandler says. Enthusiasm over stocks rose in 2014 as did the belief that double-digit gains are a right. They're not, Sandler says. "This will be a year of more modest returns in the U.S."

Contributing: The Associated Press.