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Stocks sink as oil slips below $50 a barrel

A trader works on the floor of the

A trader works on the floor of the New York Stock Exchange on Wall Street on Friday, Jan. 2, 2015. Credit: Bloomberg News / Jin Lee

The ongoing slump in the price of oil created a headache for the stock market Monday.

Oil plunged early in the day, dipping below $50 for the first time in more than five years. The sharp drop prompted a big sell-off, not just in the energy sector, but across the entire stock market.

At the close on Wall Street, the Dow Jones industrial average was down 331.34, or 1.86 percent, at 17,501.65. The Standard & Poor's 500 index was down 37.62 points, or 1.83 percent, at 2,020,58. The Nasdaq composite lost 72.24 points, or 1.57 percent, to 4,652.57.

Stocks had already endured a weak open amid concerns that Greece could exit the euro, adding to worries about the poor outlook for growth in that region. As oil continued to slide, the losses deepened and the S&P's 500 index ended the day with its biggest loss in three months.

The price of oil has been falling since last summer amid mounting evidence that the world is oversupplied with the commodity after a surge in U.S. production. After six months of falling prices, investors are now getting jittery that the slump is attributable to more than just the supply glut; it could also be signaling a weakening global economy.

"The lower that oil prices go, the more it reinforces into the market's mind that perhaps this is more of a demand issue than a supply issue," said Burt White, chief investment officer at LPL Financial. That raises questions "about the robustness of this recovery."

Energy stocks led the drop, plunging 4 percent, as the price of oil closed down $2.65 at $50.04 a barrel, after dipping below $50 during trading. But the declines were broad, and even airline stocks, usually a beneficiary of lower oil prices, ended the day lower.

Most analysts and economists say that, on balance, a decline in oil prices is a boon for the broader economy because it reduces energy costs for industrial companies. Lower gas prices also put more money in the pockets of consumers.

But there are downsides as well. As the price of oil slumps, some companies in the energy industry will go out of business. Not only will that cost jobs in the sector, but it will also cut spending on things like plants and equipment.

Transocean, a company that provides offshore drilling services to oil companies, was among the biggest decliners in the S&P 500 index on Monday. The company's stock slumped $1.28, or 7.1 percent, to $16.84.

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