Market pros have been predicting a pullback for some time, noting that declines of 10 percent or more are common during bull markets. There hasn't been one in two years, and by many measures stocks had been looking expensive.
The same is true of many global markets, where investors have been bracing for a correction while hoping not to see one.
"There would be few places to hide from the risk-off atmosphere that is expected to extend its stay in Asian markets today in a significant manner," Jingyi Pan of IG said in a commentary. "This is fear rolling over itself," she said.
Panic in other markets can send investors racing for the "safe haven" of Japanese yen holdings, she noted. That is painful for Japanese and other regional export manufacturers, whose competitiveness is hurt by stronger currencies that push their prices relatively higher.
The U.S. dollar weakened against the Japanese yen early Tuesday, trading at 108.61 yen, down from 109.12 on Monday.
Australian shares shed four months of gains in just morning trading, with all sectors losing ground.
In U.S. trading, banks fared the worst as bond yields and interest rates nosedived. Health care, technology and industrial companies took outsize losses and energy companies sank with oil prices.
By late morning Asian time benchmark U.S. crude had fallen 73 cents to $63.42 per barrel in electronic trading on the New York Mercantile Exchange. On Monday, it gave up $1.30 to $64.15 per barrel. Brent crude, which is used to price international oils, shed 73 cents to $66.89 per barrel.
After the market's big gains in 2017 and early 2018, stocks were overdue for a drop, said David Kelly, the chief global strategist for JPMorgan Asset Management.
"It's like a kid at a child's party who, after an afternoon of cake and ice cream, eats one more cookie and that puts them over the edge," said David Kelly, the chief global strategist for JPMorgan Asset Management.
During Monday's roller-coaster trading on Wall Street, at its lowest ebb, the Dow was down 1,597 points from Friday's close. That came during a 15-minute stretch where the 30-stock index lost 700 points and then gained them back.
The Dow finished down 4.6 per cent at 24,345.75.
The Standard & Poor's 500 index, the benchmark most professional investors and many index funds use, sank 4.1 per cent, to 2,648.94. That was its biggest loss since August 2011, when stocks were reeling as investors were fearful about European government debt and the U.S. had its credit downgraded after the debt ceiling impasse.
The Nasdaq composite fell 3.8 per cent to 6,967.53. The Russell 2000 index of smaller-company stocks sank 3.6 per cent to 1,491.09.
The slump began Friday as investors fretted that creeping signs of higher inflation and interest rates could derail the U.S. economy along with the market's record-setting rally.
The S&P 500 has fallen 7.8 per cent since January 26, when it set its latest record high.
Investors are worried that rising inflation might push the Federal Reserve to raise interest rates more quickly, which could slow down economic growth by making it make it more expensive for people and businesses to borrow money.
The highest bond yields in years are making bonds more appealing to investors compared with stocks.
As bad as Monday's drop is, the market saw worse days during the financial crisis. The Dow's 777-point plunge in September 2008 was equivalent to 7 per cent, far bigger than Monday's decline.
The last 10 per cent drop for markets came in early 2016, when oil prices were plunging as investors worried about a drop in global growth, which could have sharply reduced demand. U.S. crude hit a low of about $26 a barrel in February of that year. A drop of 10 per cent from a peak is referred to on Wall Street as a "correction."
Bond prices jumped after a steep decline on Friday. The yield on the 10-year Treasury slipped to 2.66 per cent from 2.84 per cent. That hurt banks by sending interest rates lower, meaning they cannot charge as much money for mortgages and other types of loans.
- AP
