Stocks Start Year in Retreat

Updated from 4:09 p.m. EST

Stocks started off 2008 on a sour note Wednesday, continuing the slide that ended the previous year, owing to a weaker-than-expected read on manufacturing activity and another surge in oil prices.

The Dow Jones Industrial Average sank 220.86 points, or 1.67%, to 13,043.96 and for a time was below 13,000. It was the worst point decline for the Dow at the start of any trading year. All but one of the Dow's 30 components traded lower, paced by a 4.9% loss in shares of Intel INTC.

At the same time, the S&P 500 was off 21.20 points, or 1.44%, to 1447.16, and after opening higher, the Nasdaq Composite lost 42.65 points, or 1.61%, to 2609.63. It was the fourth straight decline for the tech-heavy Nasdaq.

"2008 is certainly starting off the way which 2007 ended, which isn't good," said Phillip Roth, chief technical market analyst with Miller Tabak. "We're in what is normally one of the strongest periods of the year, as new money comes available to buy stocks. People are making a conscious decision not to buy, which is a bearish omen. Still, this is just one day."

Breadth was dismal. About 3.35 billion shares changed hands on the New York Stock Exchange, with decliners beating advancers by a 10-to-7 margin. Volume on the Nasdaq reached 1.99 billion shares, as losers topped winners 2 to 1.

The major averages tumbled following a disappointing factory index from the Institute for Supply Management. The data showed a decline to a reading of 47.7 in December, indicating a contraction in manufacturing. Economists had expected the index to come in at 50.5, down from 50.8 in November.

"The ISM number really is a warning signal," said Paul Mendelsohn, chief investment strategist with Windham Financial. "Once the manufacturing side contracts, it could indicate more layoffs in the sector, which in turn would mean weaker job growth. This is not a good way to start off the year."

Ian Shepherdson, chief economist with High Frequency Economics, said the ISM suggests that pullbacks in other areas are intensifying and supports the view that the Federal Reserve still has work to do when it comes to rate cuts.