Stocks close slightly lower as oil plunges below $28 a barrel

Volatility continues to rule on Wall Street as stocks close slightly lower in choppy trading Tuesday amid another steep drop in oil prices and global stock turmoil that saw Japanese shares fall more than 5% overnight.

Global investors are experiencing high anxiety as the dismal start to 2016 continues. There has been a flight from risky assets, such as stocks, as investor worries mount over a myriad of risks, including slowing global growth, a steep decline in oil prices, uncertainty over interest rate policy in the U.S. and, more recently, concern over the health of banks, mainly in Europe.

The Dow Jones industrial average fell 12.67 points, or 0.1%, to 16,014.38, after tumbling 140 points at the open and then recovering and rising about 30 points. The Standard & Poor's 500 index fell 1.23, or 0.1%, to 1852.21 and the Nasdaq composite index dropped 14.99, or 0.4%, to 4268.76.

U.S. benchmark crude got crushed, falling 5.6% to $27.94 a barrel. Oil came under more pressure after a report by the International Energy Agency said supply is set to outpace demand this year and that global excess supply may reach 2 million barrels per day during the first quarter.

Ask Matt: Why is cheap oil bad for stocks?

The persistent selling is adding up to sizable losses on Wall Street early in the new year. Heading into Tuesday's trading session the Dow was down 8% in 2016, the S&P 500 was off 9.3% and the Nasdaq was 14.5% lower.

And the declines from last year's record closing highs are even bigger. The Nasdaq composite is down 17.9% from its July record, and flirting with a bear market, defined as a decline of 20% or more. Both the Dow and S&P 500 remain firmly in correction territory. The Dow is off 12.5% from its peak and the S&P is down 13%.

The paper losses are adding up, too. The Wilshire 5000 Total Market Index has lost $2.6 trillion in market value so far this year after falling 10.6%.

Investors fear a negative feedback loop from the combination of big losses in the oil patch and slowing economic growth around the globe. Wall Street is now starting to price in a recession in the U.S., despite the fact that economists are still placing a relatively low probability of a recession striking.

Wall Street pros say asset prices got inflated from the Federal Reserve's zero interest rate policy and money printing that occurred to get the economy back on its feet following the 2008 financial crisis. Now, with the Fed at the start of an interest rate hike cycle, some of the air is coming out of investments that became overvalued.

Investors worry that rate hikes from the Fed this year will cause the current market turbulence and economic slowdown to worsen. That is why Wall Street pros will be closely watching Fed chair Janet Yellen's two-day testimony to Congress beginning Wednesday for any signs that the Fed, which has said it plans on gradual hikes this year, will pare back its earlier calls for four quarter-point hikes totaling 1% this year.

Monday's wild ride on Wall Street, when the Dow Jones industrial average cut a 401 point loss in half to finish down 178 points, spread to Asia overnight.

The Nikkei 225 in Japan tumbled 5.4% and, in a sign of rising risk aversion, the yield on Japan's 10-year government bond fell into negative territory at -0.023%. A negative yield means investors earn no interest on their investment, but instead pay the government to keep their cash safe. Stocks also finished nearly 3% lower in Australia.

Tokyo stocks slide 5% amid growth fears

In Europe, which suffered sizable losses across the board yesterday, shares tumbled again in a volatile session Tuesday. The broad Stoxx Europe 600 closed down 1.7%. The German DAX was off 1.1% and the CAC 40 in Paris was down 1.7%.