Stocks had one of their worst opening days ever after getting slammed by $100 oil and bad news for manufacturing and the credit industry.
The Dow Jones Industrial Averaged plunged about 220 points, one of the biggest declines ever on the first trading day of the year. The Nasdaq and S&P 500 also had one of their worst opening days.
Before the market opened for the new year, the Institute for Supply Management said manufacturing contracted in December. Then, oil prices soared to $100 a barrel and private home building hit its lowest level in years.
The market briefly backed off its lows for the day after minutes from the Federal Reserve's December meeting suggested the central bank could be leaning towards an interest rate cut. But stocks quickly fell again when oil, which had retreated from its daily high, made a U-turn back up and closed at $99.64.
"I don't know whether institutions are repoisitioning themselves at the start of the year, or if there's some tax aspect to it," said David Twibell, president of wealth management at Denver-based Colorado Capital Bank. "Obviously we had some really ugly numbers out of the ISM, which told us nothing we didn't already know."
Stocks also were influenced by analyst downgrades in the financial industry and computer chipmakers.
Punk Ziegel analyst Richard Bove lowered his Citigroup outlook for 2007 and 2008, and CNBC reported earlier that the bank would begin laying off up to 10 percent of its employees starting next week.
Sanford and Bernstein analyst Howard Mason wrote in a Dec. 31 report that Citi may need to write down $12 billion of debt and boost reserves for bad loans by $1 billion. Mason also said Bank of America and JP Morgan Chase may have respective fourth-quarter writedowns of $5.5 billion and $1 billion.
"We are trimming our estimates for the fourth quarter of 2007 and 2008 to account for capital markets write-downs, loan loss reserve building, slower net interest margin re-normalization in 2008 and reduced buyback activity," Mason wrote.