This is the next worry for stocks

Stocks took a thumping on the first trading day of the year, leaving investors to wonder if 2016 will be the year the bull market gives up.

As stock prices crumbled, traders worried that more weakness in manufacturing will bite into corporate profits, when fourth quarter earnings are reported beginning next week.

Stocks were mixed and flattish Tuesday, after Monday's losses. Weak Chinese manufacturing data Monday kicked off a global sell-off that sent the S&P 500 down 1.5 percent. Soft U.S. ISM manufacturing data and concerns about tension between Saudi Arabia and Iran added to the selling pressure.

Shanghai stocks Tuesday attempted to rally but declined 0.3 percent after liquidity measures and other intervention by the Chinese government failed. Shanghai was down 7 percent before being halted Monday.

"It just shows you the start of the year hasn't changed how people feel about the market. They've been worried about China. They've been worried about oil and high yield and the dollar," said Thomas Lee, founder of FundStrat Global Advisors. "Anything that concerned people at the end of last year continues to bother them now. I think last year it was pretty hard for earnings to survive that strong dollar and drop in oil, and I think the PMIs that came out are just adding to the concerns."

A trader works on the floor of the New York Stock Exchange.
Getty Images
A trader works on the floor of the New York Stock Exchange.

Read MoreWhy China is shaking global markets ... again

Wall Street forecasts for the S&P 500 for 2016 look for single-digit percentage gains and are less optimistic than last year's forecasts. Analysts surveyed by CNBC have a median S&P 500 target of 2,200 for 2016. At this time last year, CNBC's survey showed expectations for the S&P were slightly higher for year-end 2015, at about 2,225

RBC strategist Jonathan Golub adjusted his 2300 target late last week to 2225 due to concerns about growth and earnings. He pointed to the sharp decline in oil prices, as well as manufacturing weakness. He sees a 4.4 percent earnings growth rate in 2016.

The S&P closed Monday at 2,012, after falling 31 points, and the Dow was at 17,148, after losing 276 points in its worst first trading day of any year since 2008. The Dow recovered slightly from a more than 400 point loss. The S&P 500 turned in a disappointing performance in 2015, closing at 2,043, a decline of 0.7 percent.

Read MoreBlackRock sees low return year for stocks

"It's only one day. You don't want to read too much into it, but given we had a muted outlook for the year, it's not shocking we got off on the wrong foot and stumbled out of the gate," said Ed Keon, portfolio manager at Quantitative Management Associates.

Analysts said the manufacturing report from China wasn't really worse than other data, and the selling appears to be related to the expected end of the selling ban issued when the Shanghai market was falling in the summer.

Read More3 reasons why markets are slumping

Lee said the stock market is clearly responding to a lack of positive catalysts. Some traders believe the first couple of days of the year can set the tone for the month of January and the rest of the year.

Read MoreChina is biggest concern in 2016: Citi investment chief

"You'd rather see the market start off on a better note," said Lee. "I don't think it's going to make a difference by the time we get to Dec. 31, but it is going to make a difference about how people feel about equities at the moment. You haven't had any sustained rally. This malaise is a reason for people to think markets are going to be flat."

According to S&P data, since 1930, there have been 13 instances where the S&P had a more than 1 percent decline on the first day of the year. The month of January was only negative in three of those years, but the S&P declined for the full year in six of the years.

"There's a bunch of reasons why people sold today, but I think it's helpful to drop back and look at the bigger picture. The reality is the market doesn't tend to offer a lot of room for upside," said Keon, noting the market is expensive on an earnings basis. He said the Fed will not raise aggressively though and the U.S. economy continues to tick along. "I think the odds of a bear market remain relatively low. I think you're going to get modest returns."

Lee does not see the bull market ending yet, and he expects the S&P 500 to reach 2,350 by year-end.

Read MoreOil may fall to $18 amid Saudi-Iran tensions: Kilduff

"I would just say this feels very uncertain, but if I had to say 'oh is a bear market starting?' I don't think so. This is a continuation of the same concerns we've had," he said.

Peter Boockvar, market strategist at The Lindsey Group, said he does believe the bull market peaked in May, and the market is heading into a bear market.

"The Fed is in phase two of tightening. Stocks are still very expensive. The internal divergences as we left 2015 were glaringly obvious," said Boockvar. "Now people are selling the leaders. In my opinion, this is the natural progression of a bear market that started in 2015. Why did everyone freak today? China was a reminder that global growth was slow."

Analysts say the next important event for stocks, even more so than Friday's jobs report, could be fourth-quarter earnings season, which starts next week and is expected to be fairly lackluster.

Read MoreWhy the market drop? It's not just China

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

They also see continued pressure on margins, as wages are expected to rise this year. But analysts mostly see the twin negatives of a stronger dollar and falling energy prices starting to abate.

Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, said the weaker U.S. ISM data are a concern for earnings. The ISM manufacturing index fell to 48.2, a sign of contraction in manufacturing and its lowest reading since June 2009.

"My rationale for the massive tail wind that you had for stocks and credit markets over the past five or six years, in terms of falling rates and rising earnings, have tailed off considerably," he said.

"The market continues to be vulnerable to short, sharp episodic weakness," he said.