U.S. stocks closed lower on Wednesday in a choppy session as oil resumed its decline, fuelling investor worries about global economic growth and causing the S&P 500 index to track the move in the commodity.
After a morning rally for both oil and stocks, the three major U.S. stock indexes fell as oil reversed course and investors also prepared for a Federal Reserve meeting next week that is expected to result in an interest rate hike.
"Often times investors will look at the commodity complex as a barometer for the global economy. Couple that with the fact that we broke support in the S&P 500," said Art Hogan, chief market strategist at Wunderlich Securities in New York, citing selling after the S&P hit the 2050 level.
The S&P started its sell-off when U.S. crude oil CLc1 started its decline around 10.35 a.m (1535 GMT). Crude futures settled lower on Wednesday after having risen as much as 4 percent as the market ignored a U.S. crude stockpile drawdown to focus on a build in distillates, including diesel, that was twice as big as expected.
"We've got a heck of a commodity bear market here and the Fed's about to raise interest rates," said Robert Phipps, a director at Per Stirling Capital Management in Austin, Texas. "People are growing concerned they're going to raise rates at the worst possible time."
The Dow Jones industrial average .DJI fell 75.7 points, or 0.43 percent, to 17,492.3, the S&P 500 .SPX lost 15.97 points, or 0.77 percent, to 2,047.62 and the Nasdaq Composite .IXIC dropped 75.38 points, or 1.48 percent, to 5,022.87.
The energy index .SPNY trimmed earlier gains to close up 1.3 percent after falling more than 10 percent since Dec. 1.
Investors are concerned about China's slowing economy and its impact on global demand for commodities as well as signs of weakness in U.S. manufacturing.
“I think the market is starting to be a little bit more concerned about global economic weakness,” said Paul Nolte, senior vice president and portfolio manager at Kingsview Asset Management in Chicago.
The S&P materials sector .SPLRCM was the brightest spot on Wednesday with a 3.1 percent increase driven by reports that Dow Chemical (DOW.N) and DuPont (DD.N) were in talks to merge. Dow shares finished up 11.9 percent, and Dupont rose 11.8 percent.
Seven of 10 major S&P 500 sectors ended down and the technology index's .SPLRCT 1.5 percent fall led the losers.
"You definitely have a risk-off situation. People took a lot of bets off the table," Andrew Frankel, co-president of Stuart Frankel & Co in New York.
Declining issues outnumbered advancing ones on the NYSE by 1,867 to 1,214, for a 1.54-to-1 ratio on the downside; on the Nasdaq, 1,932 issues fell and 866 advanced for a 2.23-to-1 ratio favoring decliners.
The S&P 500 posted eight new 52-week highs and 16 new lows; the Nasdaq recorded 28 new highs and 126 new lows.
More than 8.05 billion shares changed hands on U.S. exchanges compared with the 6.89 billion average for the last 20 sessions, according to Reuters data.
(Additional reporting by Marcus E. Howard, Tanya Agrawal and Aastha Agnihotri; Editing by James Dalgleish)