Investing.com -- U.S. stocks plunged more than 1% on Wednesday completing their worst three-day start to a year since 2008, as crude oil prices plummeted to fresh multi-year lows and the Federal Reserve reiterated its plan to raise interest rates gradually over the next year.
Investors also reacted to gloomy geopolitical and economic news in Asia, as North Korea announced that it successfully detonated a miniature hydrogen bomb on Wednesday morning, while China said activity in its service sector in December fell to its lowest level in 17 months. While the apparent escalation of North Korea's nuclear capabilities spooked markets throughout Asia and sent a ripple effect through equity markets around the world, a host of experts expressed intense skepticism that Wednesday's test contained a highly-destructive hydrogen bomb. The test triggered a 5.1 magnitude earthquake, according to the United States Geological Survey, nearly matching the Richter scale readings of three other tests conducted by North Korea since 2006. The size of the tremor is generally regarded as too small for a hydrogen test.
The Dow Jones Industrial Average plummeted 252.15 or 1.47% to 16,906.51, while the S&P 500 Composite index fell 26.45 or 1.31% to 1,990.26, extending the weakest yearly starts for the major indices since the Financial Crisis. The Dow and the S&P 500 both fell below key technical levels on Wednesday, dropping under 17,000 and 2,000 points respectively. The NASDAQ Composite index also fell 55.66 or 1.14% to 4,835.77, as U.S. equities erased nearly half of their gains from a productive fourth quarter in a span of just three days.
On the S&P 500, all 10 sectors closed in the red as stocks in the Energy, Basic Materials and Telecommunications sectors lagged. Energy stocks fell precipitously as the front month contract for U.S. crude crashed below $34 a barrel to reach a seven-year low, while the international benchmark for crude dropped to its lowest level since 2005. The XLE Energy Select Sector SPDR Fund, an exchange traded fund that tracks energy stocks, slumped by more than 4% to its lowest level since September 30, 2011.
The top performer on the Dow was Wal-Mart Stores Inc (N:WMT), which added 0.63 or 1.00% to 63.55. Wal-Mart (N:WMT), the lone Dow component to close in the green, closed on Wednesday as the top performer on the Dow for the third straight day. In December, the largest retailer in the U.S. offered deep discounts on technology products and video games in the post-Christmas shopping season to offset slow holiday sales. Wal-Mart closed as the top performer on the Dow for the second consecutive session. Since bottoming to a 52-week low in November, Wal-Mart shares are up by nearly 12%. The worst performer was Chevron Corporation (N:CVX), which lost 3.54 or 3.95% to 86.07. As crude futures have lost more than a third in value over the last year, Chevron (N:CVX) shares have plunged more than 20%.
The biggest gainer on the NASDAQ was Netflix Inc (O:NFLX), which surged 10.02 or 9.31% to 117.68. Earlier on Wednesday, Netflix (O:NFLX) CEO Reed Hastings announced that the company would make its streaming online service available in 130 countries, including India, Russia, Turkey and Indonesia. The worst performer was Lam Research Corp (O:LRCX), which fell 4.59 or 5.87% to 73.56.
Netflix was also the top performer on the S&P 500, just ahead of Time Warner Inc (N:TWX), which jumped 3.10 or 4.73% to 68.62. Shares in Time Warner have risen by approximately 6% since the start of the year, amid heavy short covering. Over the last six months, shares in the major media company are down by more than 26%. The worst performer was Williams Companies Inc (N:WMB), which fell 3.43 or 13.03% to 22.90. Stocks in prominent energy, drilling and natural gas companies were among the worst performers on Wednesday, as more than a dozen corporations in the industry closed down by at least 7%.
The minutes from the Federal Reserve's December meeting released on Wednesday, showed that the U.S. central bank could raise interest rates gradually this year in order "to support further improvement in labor market conditions and to exert upward pressure on inflation." Last month, the Fed began its first tightening cycle in nearly a decade with its historic decision to abandon a seven-year zero interest rate policy.
On the New York Stock Exchange, declining issues outnumbered advancing ones by a 2,282 to 793 margin.