Stocks Hit Another Oil Slick

And so it’s on again — after a few light-volume days that breathed life back into commodities and brought stocks close to another high for the year, investors returned to push most assets significantly lower on Wednesday.

The Dow Jones Industrial Average fell 130 points to 12,630, the Nasdaq lost 27 points to 2845 and the S&P 500 slipped 15 points to 1342.

Such is the current state of volatile markets. Oil fell more than 5% to close at just above $98 a barrel, silver shed more than 8%, and gold lost about 1% — all of the three essentially giving up their gains accrued during a three-day rally.

Many observers were pointing to strength in the dollar as a prime contributor to the commodities selloff — and the subsequent hit on energy and materials equities names.

Specifically, some inflationary concerns out of both China and the U.K. on Wednesday turned out to be solid news for the greenback, which, despite the multiplying amount of them out there, benefited from a reality check that certain inflationary concerns may be more real than those in the U.S. (For now).

As you’d expect, energy companies and miners didn’t fare well on Wednesday. Freeport McMoRan (NYSE:FCX), for example, shed 5.5%.

And as we’ve seen (as early as four days ago), the deflation of oil and precious metals isn’t much of a sail-blower for small-cap stocks. The Russell 2000 lost 1.7%

It’s also somewhat worrisome for bulls that large financial stocks as a whole have once again dropped near their lows for the year. The SPDR Financial Select Sector (NYSE:XLF) exchange-traded fund fell 1.4%, and as we’ve noted in the past, a medium-term downtrend from mid-February remains very much intact.

Whatever happens to the rest of the market on Thursday, it’s probably pretty safe money that a fall by the XLF below its 2011 lows would not be a good thing for stocks in the short term.

Airlines outperformed on Thursday — US Airways (NYSE:LCC) gained 5.2% while American Airlines parent AMR Corp. (NYSE:AMR) rose 4.6% — with the fall in crude getting the sector back to two-month highs.