U.S. stocks closed sharply lower Wednesday, pressured by low oil prices, as concerns about global economic slowdown weighed ahead of major earnings reports.
The S&P 500 closed down 2.5 percent, ending below the psychologically key 1,900 level for the first time since Sept. 29. The index fell below that level in intraday trade for the first time since Oct. 2, 2015. Consumer discretionary was the greatest declining sector.
All three U.S. averages closed more than 10 percent below their 52-week intraday highs, in correction territory. ( Tweet This )
"It started with crude just weakening a little bit. Everyone's so afraid of this earnings season they're pre-selling it," said JJ Kinahan, chief strategist at TD Ameritrade.
He noted selling accelerated as the S&P 500 gave up gains for the day and turned lower in late-morning trade. The VIX also climbed, holding near 25 in the close.
Chatter about stress in the hedge fund community contributed to the selling pressure while traders also noted a certain flight to safety.
Treasury yields fell, with the 10-year yield hitting its lowest since late October and the 2-year yield touching its lowest since mid-December.
Stocks opened higher but quickly turned lower as oil gave up initial gains following inventory data.
The Dow Jones industrial average ended about 365 points lower after briefly falling 393 points in afternoon trade, with Home Depot one of the greatest contributors to losses. Goldman Sachs and Boeing were also among the top contributors to declines.
The Dow transports closed down 3.68 percent at their lowest level in more than two years.
Oil prices remained near their lowest in more than a decade.
WTI (New York Mercantile Exchange: @CL.1) crude oil futures settled up 4 cents, or 0.13 percent, at $30.48 a barrel. WTI briefly fell below the psychologically key $30 level Tuesday and hit a fresh 12-year low.
Brent (Intercontinental Exchange Europe: @LCO.1) briefly fell below $30 a barrel in intraday trade Wednesday and settled at $30.31 a barrel, the first close below U.S. crude since Dec. 30, 2015.
"There's basically no buying, which is part of the problem," said Jeremy Klein, chief market strategist at FBN Securities.
"You're going to need some buyers to come in. Earnings is going to be an opportunity to do that," he said, also noting some volatility ahead of options expiration on Friday.
"The fear of a slowing economy is taking over," said Adam Sarhan, CEO of Sarhan Capital.
"The fact that we erased gains and can't rally from deeply oversold conditions tells you everything you need to know about this market," he said.
The Nasdaq composite underperformed, closing down 3.4 percent, as Amazon (AMZN) fell 5.8 percent and the iShares Nasdaq Biotechnology ETF (IBB) (IBB) lost 5.4 percent. Apple (AAPL) turned lower to close nearly 2.6 percent lower.
Some traders also said a factor behind the declines in stocks was news that brewing giant AB InBev has launched a $46 billion seven-tranche bond, the second biggest corporate bond on record, market sources told IFR on Wednesday.
"I think it's just wait and see now until the bank earnings come in," said Marc Chaikin, CEO of Chaikin Analytics.
"The mood is pretty sour on Wall Street. I think people are using rallies as opportunities to raise cash," he said, noting resistance in the S&P 500 at 1,950.
JPMorgan Chase (JPM) earnings are expected Thursday before the opening bell.
Energy fell 1.78 percent after initially attempting to trade higher. Oil gave up earlier gains of more than 3 percent after weekly U.S. crude inventory data showed a build of 234,000 barrels and a rise of 8.4 million barrels of gasoline, according to Dow Jones.
The iShares MSCI Emerging Markets ETF (EEM) (NYSE Arca: EEM) closed down 1.05 percent after earlier trying for gains.
"I think the EEM is a good proxy for stability outside the U.S. and threat to growth," said Ilya Feygin, managing director and senior strategist at WallachBeth Capital.
The market is going to "focus on oil, China, and is there a threat to global growth?" he said.
European stocks pared gains to end mixed. U.S. stocks opened higher Wednesday, helped by recovery in oil prices and Chinese data overnight.
China's crude oil imports hit a record high in December, while copper imports were the second highest on record, according to customs data.
Overall Chinese exports and imports fell by less than expected in December, leaving a trade surplus of over $60 billion for the month, the data showed. The economy likely had its weakest annual growth in 25 years. China GDP data is expected next week.
The Chinese yuan held steady for a fourth-straight day, with the People's Bank of China setting the yuan midpoint fix against the U.S. dollar at 6.5630, compared to yesterday's fix of 6.5628.
"Just more stability coming out of the Far East. Some stability coming into the yuan," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.
"We had a rebound yesterday that was decent. Some of the market internals weren't strong," Luschini said. "The question will be, can it carry through (Wednesday)?"
Devaluation in the yuan against the dollar last week and speculation of significant weakening in the currency weighed heavily on U.S. stocks last week.
The Shanghai composite stock index (Shanghai Stock Exchange: .SSEC) erased early gains to close 2.4 percent lower, while Asian markets mostly closed higher on Wednesday.
In a Wednesday speech, Boston Fed President Eric Rosengren said global and U.S. economic growth may be slipping and force the Federal Reserve into a more gradual course of rate hikes than officials currently expect.
Separately, Chicago Fed President Charles Evans said the central bank should raise rates only two or three times this year given the challenges for inflation to reach the 2-percent target, Reuters reported, citing prepared remarks.
The Fed's Beige Book said economic activity expanded in nine of the 12 districts. Growth was modest in most districts.
Treasury yields held near Tuesday's lows, with the 2-year yield (U.S.:US2Y) at 0.91 percent and the 10-year yield (U.S.:US10Y) at 2.07 percent.
The Treasury auctioned 10-year notes at a high yield of 2.09 percent.
The U.S. dollar traded flat against major world currencies, with the euro near $1.088 and the yen at 117.81 yen against the greenback.
Copper gave up earlier attempts at gains to hit a fresh near-seven-year lows. Freeport-McMoRan (FCX) extended the week's sharp decline to close down 9 percent.
In other economic news, mortgage application volume increased 21.3 percent last week versus the previous week on a seasonally adjusted basis, according to the Mortgage Bankers Association.
As of the close Wednesday, the major U.S. averages were on pace for a weekly loss of 1 percent or more, for a decline of 7 percent or more for the year so far.
U.S. stocks closed higher Tuesday, recovering most of their opening gains and shaking off intraday pressure from declines in oil.
The Dow Jones industrial average (Dow Jones Global Indexes: .DJI) closed down 364.81 points, or 2.21 percent, at 16,151.41, with Home Depot (HD) the greatest decliner and Exxon Mobil (XOM) the only gainer.
The S&P 500 (^GSPC) closed down 48.40 points, or 2.50 percent, at 1,890.28, with consumer discretionary leading all 10 sectors lower.
The Nasdaq (^IXIC) composite closed down 159.85 points, or 3.41 percent, at 4,526.06.
The CBOE Volatility Index (VIX) (^VIX), widely considered the best gauge of fear in the market, held near 25.
About nine stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of nearly 1.2 billion and a composite volume almost 5.1 billion in the close.
Gold futures for February delivery settled up $1.90 at $1,087.10 an ounce.
—Reuters contributed to this report.
Correction: This story has been updated to reflect that the S&P 500 broke the psychologically key 1,900 level in intraday trade. That figure was misstated in an earlier version of this story.
On tap this week:
Earnings: JPMorgan Chase, Intel, First Republic Bank, Shaw Comm.
8:15 a.m.: St. Louis Fed President James Bullard
8:30 a.m.: Initial claims, import prices
10:30 a.m.: Natural gas inventories
1 p.m.: 30-year bond auction
Earnings: BlackRock, Citigroup, US Bancorp, Wells Fargo, PNC Financial Services, Fastenal
8:30 a.m.: Retail sales, PPI, Empire state manufacturing survey
9 a.m.: New York Fed President William Dudley
9:15 a.m.: Industrial production
10 a.m.: Consumer sentiment, business inventories
1 p.m.: Dallas Fed President Robert Kaplan
1 p.m.: Oil rig count
*Planner subject to change.
More From CNBC.com:
- These stocks almost always gain on earnings
- Take a deep breath and relax: BofA economist
- General Motors raises 2016 guidance, dividend
More From CNBC