Stocks pared losses but remained sharply lower after three days of gains as commodities sank, triggered by an uptick in oil and gasoline inventories against a backdrop of worries over Greek debt and the health of China's economy.
The Dow Jones Industrial Average dropped more than 125 points after rising more than 75 points on Tuesday.
Walt Disney led the blue-chip average lower throughout the session following disappointing earnings and revenue results delivered after the market closed on Tuesday. Disney's amusement parks were hurt by the disasters in Japan, and the poor performance of "Mars Needs Moms."
The Dow got some support from Intel, which jumped after the tech firm said Wednesday it would raise its cash dividend by 16 percent to 21 cents a share.
TheS&P 500 and the Nasdaq also fell more than 1 percent each. The CBOE Volatility Index, widely considered the best gauge of fear in the market, soared more than 8 percent to above 17.
All key S&P 500 sectors declined, led by energy and materials.
The energy sector sank more than 3 percent, with more than 90 percent of all energy stocks lower, as prices for oil futures added to losses after the U.S. Energy Information Administration reported that inventories for crude stocks and gasoline rose more than expected amid sliding demand.
Oil prices were already weaker after news that China's inflation rate slowed in April as industrial output fell and renewed concerns of a global economic slowdown.
The rapid fall in prices of oil and gasoline prompted the New York Mercantile Exchange to halt trading in crude oil, gasoline and heating oil futures shortly after noon. Trading resumed a few minutes later at higher daily price limits.
U.S. light, sweet crude plunged $5.67 or 5.46 percent to settle at $98.21. In London, Brent crudesank $5.06 or 4.3 percent a barrel to settle at $112.57.
"Energy and commodities have been a real leadership group for a long time," said Nicholas Colas, chief market strategist at BNY ConvergEx Group. "The question has always been demand destruction," Colas said. "The inventory numbers got people’s attention."
Commodities have benefited from two things, Colas continued: a weak U.S. dollar and a growing U.S. economy.
"Now we are facing the flip side," he said. The economy's strength is being slowed by higher oil prices, while debt troubles in periphery euro zone countries are causing the dollar to strengthen against the euro. "That’s the second nail in the coffin, which is why you get this exaggered move," Colas said.
On Wednesday, the dollar gained against a basket of currencies as the euro fell, reflecting heightened concerns about the effects of Greece's debt troubles.
A strengthening dollar could lead analysts to revise their forecasts for second quarter earnings, as multinationals will no longer have a weak dollar to fuel their overseas sales, Colas added.
Precious metals also plunged on Wednesday as silver futures fell 7.7 percent to settle at $35.51 and gold futures fell more than 1 percent to settle at $1,501.10. (Read more: Why Commodities Prices Are Falling Again).
In stocks, Yahoo sank after Alibaba.com, which owns Alibaba Group, took full control of Alipay, a Chinese online payment business. Yahoo owns 43 percent of Alibaba.
In corporate news, AIG and the Treasury scaled back plans for share sale, and will now offer$9 billion in AIG stock.