Stocks came off brutal session lows in the final hour of trading Wednesday, after being deeply in the red as a massive selloff in crude oil prices spooked traders. 

The Dow Jones Industrial Average slid 1.6%, though recovered from a drop of around 500 points earlier in the day, the S&P 500 was down 1.1%, and the Nasdaq turned slightly higher. The Volatility Index, otherwise known as the "fear index," jumped 10% to 28.65. 

Crude oil prices extended their decline on Wednesday to close at their lowest level since May 2003. Pressure remained after the International Energy Agency warned that the global oil market could "drown" in oversupply this year as Iranian oil floods demand. West Texas Intermediate was down 6.7% to $26.55 a barrel. 

Some speculate that the worst for oil has yet to come, bad news for both commodities and equities investors. Morgan Stanley analysts predicted oil prices in their $20s earlier this year, a forecast which is now reality. 

Global markets engaged in a steep selloff after a major rally on Tuesday. In Asia, the Hang Seng in Hong Kong fell to its lowest level since the financial crisis, while the Nikkei in Japan fell into a bear market, down more than 20% from its recent high. All European markets were lower.

"We're not yet three weeks into the new year, and already, warning bells are going off about the global economy," said Christopher Vecchio, currency analyst at DailyFX. "The global equity market rout has taken on a new identity with losses of -20% or more piling up over the past 52-weeks. The German DAX 30, the UK FTSE 100, and the Japanese Nikkei ... have all entered bear market territory."

Wall Street hasn't yet entered a bear market, though it's firmly in correction territory. The S&P 500 has fallen 15% from its 52-week high. 

Energy prices continued to pressure inflation with the Consumer Price Index in the U.S. falling 0.1% in December. Excluding volatile items such as food and energy, core prices rose 0.1%. Over the past 12 months, consumer prices have risen 0.7%, or 2.1% excluding energy.

The housing sector showed seasonal weakness as U.S. housing starts fell 2.5% in December to a rate of 1.15 million. Homebuilder permits fell 3.9% in December to 1.23 million. Total housing starts in 2015 climbed 10.5%, while permits jumped 12%.

IBM (IBM - Get Report) was the worst performer on the Dow, contributing around 60 points to its drop. The tech giant fell 5.3% after suffering its 15th straight quarter of falling revenue. The company reported revenue of $22.06 billion in its fourth quarter, down from $24.11 billion a year earlier. Quarterly profit of $4.84 a share came in 3 cents above estimates.

Goldman Sachs (GS - Get Report) also was a drag on markets after a disappointing quarter. Quarterly profit fell 65% from a year earlier as trading revenue slid and legal settlements hurt the bottom-line. The stock fell 2.8% on Wednesday.

Royal Dutch Shell (RDS.A - Get Report) said it expects its fourth-quarter profit to drop by at least 40% to between $1.6 billion and $1.9 billion after a sharp drop in crude oil prices. Energy companies are expected to have suffered a brutal fourth quarter as crude oil prices squeezed margins.

Netflix (NFLX - Get Report) slumped 6.5% despite reporting a better-than-expected quarter. The streaming service said it added 5.59 million subscribers in its fourth quarter, better than estimates of 5.15 million, boosted by international expansion.

Microchip (MCHP - Get Report) finally secured a deal with Atmel (ATML) after another bid from Dialog Semiconductor (DLGNF) fell through. The semiconductor company offered Atmel $8.15 a share for a total valuation of $3.4 billion.