Stocks end sharply lower as oil prices tumble
After rising more than 75 points on Tuesday, the Dow dropped 130 points on Wednesday
Brendan McDermid / Reuters
Stocks tumbled 1 percent after three days of gains as a hike in oil and gas inventories triggered a selloff in commodities amid worries of a slowdown in global growth.
Walt Disney led the blue-chip average lower following disappointing earnings and revenue results delivered after the market closed on Tuesday. Disney's amusement parks were hurt by the disasters in Japan, and the poor performance of "Mars Needs Moms."
The Dow got some support from Intel, which jumped after the tech firm said Wednesday it would raise its cash dividend by 16 percent to 21 cents a share.
The S&P 500 fell 15.08 points, or 1.1 percent, to close at 1,342.08, while the Nasdaq fell 26.83 points, or 0.9 percent, to close at 2,845.06. The CBOE Volatility Index, widely considered the best gauge of fear in the market, gained more than 6 percent to close at nearly 17.
All key S&P 500 sectors declined, led by energy and materials.
The energy sector sank about 3 percent, with more than 90 percent of all energy stocks lower as oil prices added to losses after the U.S. Energy Information Administration reported that inventories for crude stocks and gasoline rose more than expected amid sliding demand.
Oil prices were already weaker after news that China's inflation rate slowed in April as industrial output fell and renewed concerns of a global economic slowdown.
The rapid fall in prices of oil and gasoline prompted the New York Mercantile Exchange to halt trading in crude oil, gasoline and heating oil futures shortly after noon. Trading resumed a few minutes later at higher daily price limits.
U.S. light, sweet crude plunged $5.67 or 5.46 percent to settle at $98.21. In London, Brent crude sank $5.06 or 4.3 percent a barrel to settle at $112.57.
"Energy and commodities have been a real leadership group for a long time," said Nicholas Colas, chief market strategist at BNY ConvergEx Group. "The question has always been demand destruction," Colas said. "The inventory numbers got people’s attention."
"Now we are facing the flip side," he said. The economy's strength is being slowed by higher oil prices, while debt troubles in periphery euro zone countries are causing the dollar to strengthen against the euro. "That’s the second nail in the coffin, which is why you get this exaggerated move," Colas said.
A strengthening dollar could lead analysts to revise their forecasts for second quarter earnings, as multinationals will no longer have a weak dollar to fuel their overseas sales, Colas added.
Precious metals also plunged on Wednesday as silver futures fell 7.7 percent to settle at $35.51 and gold futures fell more than 1 percent to settle at $1,501.10.
Elsewhere on the earnings front, Macy's soared after reporting fiscal first-quarter earnings that topped analysts' estimates. The department store retailer also raised its fiscal 2011 earnings forecast and its dividend.
Johnson & Johnson gained after Goldman Sachs upgraded the pharmaceutical company to "buy" from "neutral," and downgraded Bristol Myers Squibb to "neutral." The brokerage said it now considers Johnson & Johnson the "best underappreciated new product story in US Pharma."
Google fell after news the search engine company set aside $500 million to settle an investigation by the U.S. Justice Department into its advertising practices. The action reduced Google's net income by $5.51 a share in the first quarter.
JPMorgan, meanwhile, declined after Bernstein cut its 2011 earnings estimates for the banking giant's shares.
Globecomm's shares surged after news the satellite-based communications company has hired JPMorgan as a financial advisor, a move some sources say could lead to a sale, according to news reports.
Volume on the consolidated tape of the New York Stock Exchange was 3.7 billion shares, while 979 million changed hands on the NYSE floor.
The U.S. Treasurys extended their rally after Treasury auctioned $24 billion of ten-year notes Wednesday at yield of 3.21 percent and a bid-to-cover of 3.00.
In economic news, the U.S. trade deficit widened to $48.1 billion in March from $45.44 billion in February, the government reported. In June 2010, the trade gap was $49.94 billion. Analysts surveyed by Reuters had expected the gap to widen to $47 billion.
Also the Mortgage Bankers Association's seasonally adjusted index of mortgage application activity rose 8.2 percent in the week ended May 6, driven by a drop in interest rates.
In Europe, the Bank of England raised its medium-term inflation forecast. Shares in Europe closed higher thanks to positive earnings news, including positive results from Hermes, the French luxury goods group.