Dow recovers from 565-point plunge

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NEW YORK — Wall Street is staging a major comeback from a scary selloff.

Earlier in the day, the Dow plunged as many as 565 points on Wednesday after crude oil plummeted another 7% to below $27 a barrel. However, stocks have bounced off their worst levels and now the Dow is “only” down about 175 points.

The S&P 500, down as much as 3.7%, is now off 0.6%. The Nasdaq is also on the comeback trail, posting a gain of 0.6% in late afternoon trading.

“We’ve experienced some seller exhaustion — and that’s good news,” said Art Hogan, chief market strategist at Wunderlich Securities.

Still, the markets remain deeply in the red on the year. The Dow has plunged nearly 1,600 points in 2016.

“Despite improving valuations, global equities continue to get hammered,” Bespoke Investment Group wrote in a client note. The firm said the appetite for risk remains “awful.”

Turmoil in China and the crash in crude oil prices remain the main culprits for the market mayhem. While China’s stock market dropped “only” 1% overnight, the energy market was considerably less quiet.

Crude crumbles below $27 — freaking Wall Street out

Oil prices crashed another 7% on Wednesday and broke below $27 a barrel for the first time since September 2003. It closed at $26.55 a barrel, leaving it down an incredible 28% since the beginning of the year.

The stock market has been intensely fixated on oil prices this year. The correlation between oil and the S&P 500 is almost perfect, a highly unusual situation compared with historic norms.

“Sentiment has certainly turned sharply negative. Markets are probably not likely to stabilize until oil finds a bottom,” David Joy, chief market strategist at Ameriprise Financial, wrote in a client note.

Crude oil has been slammed in recent days by concerns over sanctions lifting on Iran, which is expected to flood the world with more oil at exactly the worst time, given the supply glut.

Some oil stocks down 10% — today alone

Cheap oil is great for car drivers but it’s freaking Wall Street out for many reasons. First, the oil crash is hurting corporate profits, especially in the energy sector.

Low oil prices are raising the specter of a wave of bankruptcies in the energy sector. Already, dozens of oil companies have filed for bankruptcy. Investors are also worried that cheap oil signals something negative about the health of the global economy.

Global markets remain in turmoil, with Japan’s benchmark Nikkei 225 tumbling into bear market territory on Wednesday. That’s market jargon for when an index or a stock dives 20% from a prior high. Stocks in Europe were also rocked, with the benchmark indices in the U.K. and France dropping 3.5% apiece and Italy’s market plunging nearly 5%.

Watch this critical threshold for stocks

The key number to watch now is if the S&P 500 closes below 1867.01 as it’s currently on track to do. That’s the lowest level the stock index hit on August 24, the day when the stock markets had freaked out and the Dow briefly plummeted more than 1,000 points.

If the S&P 500 ends below that threshold, it would be seen as a big negative sign for the market and reflects the level of fear in the market.

Michael Block, chief market strategist at Rhino Trading, thinks U.S. stocks “look oversold” at current levels and believes now is the time to look for buying opportunities.

“I am watching that August low and below that is where I come alive, albeit carefully,” Block wrote in a client note. “I am not jumping in with both feet.”

Nearly all stocks are down this year

Signs of fear abound on Wall Street. The 10-year Treasury yield slipped back below 2% on Wednesday as investors rush to the safety of government debt.

CNNMoney’s Fear & Greed Index, which monitors a series of market indicators to gauge sentiment, is flashing “extreme fear.”

Less than two dozen stocks in the S&P 500 are trading higher on the year. The biggest winners are ConEd, a utility that investors see as a defensive play because of its high dividend, and Macy’s, the struggling department store that just announced plans to cut thousands of jobs.