US close: Stocks fall sharply as oil sets new five-year low

Another tumble in the international price of oil saw Wall Street retreat on Wednesday.

The Dow Jones Industrials finished 1.51% lower at 17,533, off by 268 points, while the Nasdaq Composite fell by 1.73% to 4,684 points and the S&P 500 by another 1.64% to reach 2,026.

Front month West Texas crude futures ended the session down by 3.93%, at $61.30 per barrel, after Saudi Arabian oil minister Ali al-Naimi replied to a reporter’s question in Lima by saying “Why should we cut output?”

Earlier in the day, Kuwait’s state-owned petroleum company announced next month it would sell its oil to Asian refiners at a discount of $3.95 to regional benchmarks, the most since December 2008.

High-yield debt costs keep pushing higher

To take note of given all of the above, a gauge of the riskiness of lending to high-growth companies – which directly impacts on their valuations and ability to finance themselves - rose by the most in two months.

The Markit CDX North American High Yield Index, which is tied to credit derivatives for such companies’ debt, jumped by 20 basis points to 375.9. There are worries in the market that a continued and persistent decline in oil prices could lead to a flurry of bankruptcies at small over-indebted oil explorers.

From a sector stand-point the worst performance was seen in the following industrial groups: coal (-4.78%), non-ferrous metals (-4.66%), heavy construction (-4.53%), home construction (-4.35%) and pipelines (-3.91%).

US GDP slowing more than expected

Acting as a backdrop, following the latest US monthly budget figures economists at Barclays Research lowered their tracking estimate for US GDP growth in the last three months of the year to 2% from the 2.5% previously projected.

The same research house also wrote to clients telling them that they now expect US consumer prices to bottom at a 0% year-on-year rate in the middle of 2015.

Ten-year US Treasury yields rose by four basis points to 2.17%.