U.S. stocks closed mostly higher on Wednesday, with the Dow and S&P completing a massive comeback spurred by a surge in oil.
"If you look at the relationship between the the Dow and the S&P, it's a little off today, meaning that the Dow is leading the S&P," said JJ Kinahan, chief strategist at TD Ameritrade. " That's got to do with what's going on in oil."
West Texas Intermediate gained about 8 percent in choppy trade after the Energy Information Administration said U.S. inventories rose by 7.8 million barrels last week. Crude prices briefly erased gains following the data release, but surged on a weaker dollar.
WTI on Wednesday
The dollar traded 1.65 percent lower against a basket of currencies, with the euro gaining 1.6 percent against the greenback, as weak U.S. services data suggested another Federal Reserve rate hike seems more unlikely.
"I ... believe oil will dictate stock prices," said Peter Cardillo, chief market economist at First Standard Financial. "I think it's safe to say we are highly dependent on oil."
The ISM non-manufacturing index January reading came in at 53.5, below the expected 55.1. It is also the lowest reading since December 2013.
"The lions share of the U.S. economy is services," Randy Frederick, managing director of trading and derivatives at Charles Schwab, said ahead of the data release. "If we see a slump in [ISM], we're going to see a sell-off in the market."
Stocks traded in a wide range Wednesday, with the Dow Jones industrial average swinging over 400 points.
The Dow opened 100 points higher, but fell over 150 points amid the weak ISM reading and the rise in crude inventories. In afternoon trading, however, the blue chips index recovered and closed over 180 points higher.
"We're in a textbook transition from a bullish environment into a bearish environment," said Adam Sarhan, CEO of Sarhan Capital. "What's happening now is strength is being sold, not weakness being bought." "The inability to make a meaningful bounce off the January lows signals, to me, ... we're in the early stages of a bear market, he said.
Dow Jones industrial average intradaySource: FactSet
The S&P 500 also traded in a range, falling more than 1 percent at its session lows, before turning positive and closing 0.5 percent higher as energy and materials led.
The Nasdaq briefly turned higher in afternoon trading, after falling about 2 percent at the lows. The index closed nearly 0.3 percent lower.
"There's some level that marks the right intersection of where the economy is," said Steve Blitz, chief economist at ITG Investment Research. "The equities market is in the process of finding it."
Oil initially rose on news that Russia may be open to a deal with OPEC in order to cut production.