The benchmark S&P 500 and the Dow suffered their biggest percentage drops since August 2011 as a long-awaited pullback from record highs deepened.
The financial .SPSY, healthcare .SPXHC and industrial .SPLRCI sectors fell the most, but declines were spread broadly as all major 11 S&P groups dropped at least 1.7 per cent. All 30 of the blue-chip Dow industrial components finished negative.
With the declines, the S&P 500 erased its gains for 2018 and is now down 0.9 per cent in 2018.
Many investors have been bracing for a pullback for months, as the stock market has minted record high after record high with investors encouraged by solid economic data and corporate earnings prospects, the latter bolstered by recently passed US corporate tax cuts.
Friday’s January jobs report sparked worries over inflation and a surge in bond yields, as well as concerns that the Federal Reserve will raise rates at a faster pace than expected.
“The market has had an incredible run,” said Michael O’Rourke, chief market strategist At JonesTrading In Greenwich, Connecticut.
“We have an environment where interest rates are rising. We have a stronger economy so the Fed should continue to tighten ... You’re seeing real changes occur and different investments are adjusting to that,” O‘Rourke said.
The Dow Jones Industrial Average .DJI fell 1,175.21 points, or 4.6 percent, to 24,345.75, the S&P 500 .SPX lost 113.19 points, or 4.10 percent, to 2,648.94 and the Nasdaq Composite .IXIC dropped 273.42 points, or 3.78 percent, to 6,967.53.
The S&P 500 ended 7.8 per cent down from its record high on Jan. 26, with the Dow down 8.5 per cent over that time.
Even with the sharp declines, stocks finished above their lows touched during the session. At one point, the Dow fell 6.3 per cent or 1,597 points, the biggest one-day points loss ever, as it breached both the 25,000 and 24,000 levels during trading.
The stock market has climbed to record peaks since President Donald Trump’s election and remains up 23.8 per cent since his victory. Trump has frequently touted the rise of the stock market during his presidency.
As the stock market fell on Monday, the White House said the fundamentals of the US economy are strong.
'Recalibration'
Treasurer Scott Morrison believes another big dive on the US stock market is a recalibration associated with recent economic data.
Australian shares look set to open sharply lower after key markets around the globe tumble, with the worst falls on Wall Street.
At 0700 AEDT on Tuesday, the share price futures index was down 88 points, or 1.48 per cent, at 5,873.
Mr Morrison told reporters in Canberra the market was reacting to last week's US wage data and more bullish sentiment about what's happening with inflation and its impact on bond markets.
"Markets are volatile - when they recalibrate in relation to events like this you do see a bit of these events happening," he said.
"But people who watch these markets more and participate in them more closely than I do, I think, will see this for what it is and understand the forces behind it."
The US jobs report sparked worries over the prospects for inflation and a surge in bond yields, as well as concerns the Federal Reserve will raise rates at a faster pace than expected.
The Australian share market is set to follow suit on Tuesday, with futures pointing to a 100-point drop at the open.
