Stocks tumble on $135 oil, Fed meeting minutes

"There's almost a parabolic rise going on," said Richard E. Cripps, chief market strategist for Stifel Nicolaus. "I do sense that the stock market is searching for where that oil peak is going to be ... but till it finally gets there and backs off, I think the stock market is under pressure."

Strong demand out of China, supply disruptions in Nigeria, the dollar's slump versus other world currencies, and political tension in the Middle East have been keeping oil on the incline.

"The factors affecting commodities, the strongest catalysts, are outside the United States," the Hartford's Krosby noted. "The Fed's ability to dampen inflationary expectations have become not completely limited, but more limited than if we were having this discussion 10 years ago."

The airline industry has been particularly slammed by the rising cost of oil. Citing high fuel prices, American Airlines said Wednesday it will start charging $15 for the first checked bag, reduce domestic flights and cut perhaps thousands of jobs. AMR Corp. shares fell $1.98, or 24 percent, to $6.22.

And although jitters over the housing-driven credit crisis have calmed since March, they are far from over. Financial stocks took a hit Wednesday after Moody's Investors Service said it is "conducting a thorough review" regarding the possibility that computer errors incorrectly gave high quality ratings to certain debt securities that later sank in value.

"That would create some real carnage in an industry that doesn't need it," said Jim Herrick, manager of equity trading at Baird & Co., referring to the banks and other financial services companies that have lost billions of dollars due to bad bets on mortgages and other debt.

Among the financial services companies in the Dow, Bank of America Corp. fell 76 cents, or 2.2 percent, to $34.63; JPMorgan Chase & Co. fell $1.28, or 2.9 percent, to $42.42; Citigroup Inc. fell $1.05, or 4.8 percent, to $21.06; and American Express Co. fell $1.83, or 3.9 percent, to $45.48.

The credit crisis' effect on the financial sector has caused it to lose its status as the largest in the S&P 500 index. Financials have been overtaken by the information technology sector, which S&P analysts said has not happened since 2002.

The dollar fell against most other major currencies, while gold prices advanced.

The Russell 2000 index of smaller companies fell 8.53, or 1.16 percent, to 727.11.