Dow sinks 250 points as oil dives below $27

Why oil's plunge is freaking out the stock market

The crash in oil prices continues to ruin your portfolio.

U.S. stocks are bracing for another punch to the gut on Thursday as investors freak out over oil diving back below $27 a barrel.

The Dow slumped 250 points at the opening bell, while the SP 500 lost 1.6%. The Nasdaq is off 1.3%, putting the tech-heavy index closer to its first bear market for since the Great Recession.

The latest selloff reflects how anxious investors remain over the slowdown in global growth and the health of large European banks.

“There’s a broad-based lack of confidence,” said Anthony Valeri, investment strategist at LPL Financial. “Everything suggests this market is heading lower in the short term. Psychology is too frail.”

Related: Why you should worry about cheap oil

But the main focus is oil, which plummeted to as low as $26.22 a barrel on Thursday. Oil has since rebounded a bit to $26.75 a barrel. If crude gets below $26.19, it’ll be the lowest level since 2003.

Cheap oil is great for consumers — but it’s fueling lots of turmoil on Wall Street. Investors fear it’s a bad omen, signaling something wrong with the underlying economy. Yet many believe the oil crash has been driven by an epic supply glut, not an alarming decline in demand.

The oil collapse is also causing trouble for energy companies, with dozens filing for bankruptcy over the past year and many others slashing jobs and suffering from steep declines in profits.

“People are losing jobs in the oil patch. Will it create a domino effect to other parts of the economy? That’s the fear,” said Valeri.

Fears are also on the rise about how much of a hit big banks that loaned money to energy companies will take from the spike in defaults.

That’s one reason why European banks have been plunging in recent weeks. Shares of Societe Generale (SCGLF), one of France’s largest banks, tumbled 12% on Thursday after reporting poor results. Other big banks like Credit Suisse (CS) and Deutsche Bank (DB) also fell sharply.

“European banks are suffering from a crisis of confidence,” Michael Block, chief strategist at Rhino Trading Partners, wrote in a client note. “SocGen did little to alleviate concerns.”

Related: Poor earnings and Sweden’s rate cut slam European banks

No matter the cause, signs of fear abound in financial markets.

Gold, which tends to rise when people are scared, surged 3.9% to a one-year high of $1,241 an ounce. It’s the biggest buying binge for gold since 2013.

Investors are also fleeing to the safety of bonds backed by the U.S. government. The 10-year Treasury yield plummeted to 1.53% on Thursday, its lowest level since August 2012.

The Nasdaq is getting closer and closer to a bear market, which signals a 20% decline from a previous high. If the tech-heavy index sinks below 4,185.55, it’ll be in bear-market territory, based on its all-time high from last summer.

Investors will also be closely watching Federal Reserve chief Janet Yellen’s second day of testimony on Capital Hill. Yellen acknowledged on Wednesday that the market turmoil and strong dollar could hurt the economy, though she reiterated the Fed’s plan to gradually raise rates.

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