This story was updated at 4:09 p.m. EST to reflect closing prices.
U.S. stocks followed global markets down Wednesday as North Korea’s alleged hydrogen bomb test added to a growing list of geopolitical concerns for investors. Oil prices hit their lowest since June 2004 ahead of the release of the Federal Reserve’s Open Market Committee minutes, which could offer indications of how quickly the Fed will raise U.S. rates.
“We're headed for a nasty sell-off. There’s a lot to chew on,” said Peter Cardillo, chief market economist at First Standard Financial, a brokerage. “Of course the North Korea test, and oil prices hitting 11-year lows. Generally these types of bomb tests by North Korea or anyone else don’t have a long-lasting effect on the markets, but it does heighten geopolitical concerns.”
The Dow Jones Industrial Average fell below the 17,000 level, while the S&P slid below 2,000.
The Dow (INDEXDJX:.DJI) closed down 252 points, or 1.5 percent. The Standard & Poor's 500 index (INDEXSP:.INX) dropped 26 points, or 1.3 percent. The Nasdaq composite (INDEXNASDAQ:.IXIC) fell 56 points, or 1.1 percent.
All 10 S&P 500 sectors were down Wednesday, with the biggest drops in energy and materials stocks. Most Dow components were in the red, with the biggest decline from Chevron Corp. (NYSE:CVX). Wal-Mart Stores Inc. (NYSE:WMT) led Dow gains.
The yield on the benchmark U.S. 10-year Treasury fell 3.16 percent Wednesday as traders sought a safe place to park their money. The bond yield falls when demand for U.S. debt increases. Gold, another safe-harbor investment, edged up 1.38 percent to $1.093.30 per ounce. Gold has gained about 3.1 percent since the start of the year.
An upbeat U.S. jobs data report released Wednesday from payroll processor ADP showed businesses adding a better-than-expected 257,000 jobs in December. It indicated that businesses were confident enough during the holiday shopping season to take on more workers. Economists polled by Bloomberg had expected 192,000 jobs.
Major European closed down Wednesday, with London’s FTSE dragged down 64 points, or 1 percent, largely due to a sell-off in mining stocks as investors backed away on heightened concern over China’s economic slowdown. The German DAX dropped 96 points, or 0.9 percent, while the Paris CAC 40 lost 57 points, or 1.3 percent.
Major Asian markets closed down Wednesday, with Hong Kong’s Hang Seng losing 208 points, or 0.98 percent, while Japan’s Nikkei 225 shed 183 points, or 0.99 percent. But China’s mainland Shanghai Composite Index advanced 74 points, or 2.25 percent, after the government intervened to prop up shares.
Concerns over the Chinese economy resurfaced after it allowed the yuan to weaken further and traders reacted to weak services sector data.
State-backed funds were ordered to buy major stocks to prop up share prices, according to local media accounts relayed by the South China Morning Post. On Monday China’s mainland markets halted trading after its main indexes plunged 7 percent, triggering “circuit breakers” for the first time.
"Continued negative sentiment towards China has put the authorities back onto the defensive in recent days," Melanie Debono, assistant economist at Capital Economics, said in a research note Wednesday. "It emerged on Wednesday that a ban on the selling of equities by large investors had been extended indefinitely. What’s more, the fact that the gap between the onshore and offshore renminbi/dollar exchange rates hit a record high pointed to renewed intervention in the currency market by the People’s Bank."
The global oil price benchmark hit its lowest price since June 2004 Wednesday as global production continues its dogged rise. Tensions between OPEC members Saudi Arabia and Iran sent the price of Brent crude to $39 Monday, but the rally was brief, as traders pivoted their attention back to the global oversupply that has shaved about 70 percent off prices since the summer of 2014.
Concern over China’s slowdown and a global commodities route lingers as a backdrop to oil overproduction. Weekly U.S. crude inventories data released Wednesday morning showed the U.S. adding 10.6 million barrels of gasoline for the week ending Jan. 1, more than the 7.1 million barrels estimated by the American Petroleum Institute (API). Crude inventories dropped by 5.1 million barrels, less than the API’s estimate of 5.6 million barrels.
West Texas Intermediate crude oil, the U.S. benchmark for oil prices, plunged 5.62 percent to $33.95 per barrel for February delivery on the New York Mercantile Exchange. Brent crude, the global benchmark for oil prices, shed 5.93 percent to $34.26 for February delivery on the London ICE Futures Exchange.