U.S. stocks plunged Wednesday on fears a freefall in the price of oil will eventually lead to a global economic slowdown.
The Dow fell 268 points, or 1.5%, to 17,534, the S&P 500 lost 34 points, or 1.63%, to 2,026 and the Nasdaq Composite dropped 82 points, or 1.73%, to 4,684.
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The Russell 2000 ended today’s session down for the year, erasing all of its 2014 advance. It is the only one of the major equity market indices that is in the red for 2014.
“Oil prices are in a freefall and what’s happening is panic is feeding on itself,” Peter Cardillo, chief market economist at Rockwell Global Capital Management said.
Big U.S.-based oil companies – ExxonMobil (NYSE: XOM), Hess Corp. (NYSE: HES) and Chevron (NYSE: CVX) – all fell more than two percent, helping to drag down the Dow Jones Industrial average.
Cardillo doubts whether the sharp decline recently in oil prices “has anything to do with the real fundamentals of oil,” but noted that if the price continues to fall it will impact oil producing states in the U.S. such as Oklahoma, Texas and North Dakota, as well as the oil-producing OPEC nations. He blamed the relentless downward pressure on energy prices partly on speculators.
Energy stocks led today’s rout that saw all ten S&P 500 sectors finish in the red for the first time in two months (since Oct. 13). Today was also the steepest drop for the S&P 500 since October 13. The S&P energy index was down 3.3%, the worst performing S&P sector and its fourth drop in five sessions. Brent crude touched a new five-year low of $63.56 on signs of oversupply and soft demand.
Also, the CBOE VIX Index hit a fresh 7-week high of 18.83, the highest since Oct. 20, and the S&P 500 closed at the lowest since Nov. 5:
Exxon Mobil, down 3%, led declines on the S&P 500.
In addition, falling oil prices have raised concerns about earnings for energy companies, with year-end tax selling putting additional pressure on the group. The sector is down more than 15% for the year and is the worst performing of the 10 major S&P sectors for the year.
Shares of Yum Brands (NYSE: YUM) dropped 6.2% a day after it lowered its profit forecast for the year for the second time, hurt by slower-than-expected sales recovery in China following a food safety scare in July.
Lower oil prices produced some winners in Wednesday’s otherwise down market. Among the gainers were airline shares, including Southwest Airlines (NYSE: LUV), up 1.8% and leading gains on the S&P 500. Barclays said airlines stand to see a decline of about $10 billion in fuel costs in 2015.
Declining issues outnumbered advancers on the NYSE by more than a 3-to-1 ratio; on the Nasdaq, decliners led by 2.56-to-1 ratio.