The Dow Jones industrial lost more than 250 points as the major averages declined more than 1.5 percent, with the Nasdaq composite joining the other major averages in negative territory for 2015.
The blue chip index is more than 11 percent from its 52-week high, in correction territory. The S&P and Nasdaq composite remained within 10 percent of their 52-week highs.
“It’s a market that’s gripped with fear, fear of uncertainty of the growth of the global economy and it’s own growth strength and that’s due to the Fed sending the wrong signals to the market,” said Peter Cardillo, chief market economist at Rockwell Global Capital.
Commodities set the tone, with copper slumping more than 3.5 percent. Traders pin the drop on global growth fears, in part due to a new report from the Asian Development Bank which cut its growth forecast for China.
Meanwhile, miners were slammed with Glencore down more than 10 percent.
“Selling started (in) European hours where autos and materials/mining were hit. Selling was very technical in nature as prices failed at resistance and broke support. Market participants were quick to panic and sell breaks of minor support,” said Ilya Feygin, senior strategist at WallachBeth Capital. “In sectors, automakers and miners were very weak along with copper.”
Oil also gave back recent gains, with crude down more than 2 percent to below $46 a barrel.
The U.S. dollar traded higher against world currencies, with the euro near $1.11 and the yen at 120.10 yen against the greenback. The dollar is at record levels against the Brazilian Real and a one-week high against the Mexican Peso.
Treasury yields held lower, with the 10-year yield at 2.16 percent and the 2-year yield at 0.68 percent.
There’s a “confluence of negative inputs here taking us close to technical levels in the S&P 500 that we don’t want to breach,” said Art Hogan, chief market strategist at Wunderlich Securities. The first level he’s watching is 1,924.
On Monday, the Dow and S&P attempted to bounce from Friday’s selloff, while the Nasdaq was dragged down by a plunge in biotechs after Hillary Clinton tweeted she would address “price gouging” in drugs.
The iShares Nasdaq Biotechnology ETF (IBB) fell about 2 percent in morning trade Tuesday after posting its worst day of 2015 Monday.
JJ Kinahan, chief strategist at TD Ameritrade, noted uncertainty about the Fed’s decision to keep short-term interest rates unchanged last week. But otherwise he said “there doesn’t seem to be a good reason” for Tuesday’s sharp declines and U.S. stocks could recover to end flat.
Dow futures plunged more than 275 points in pre-market trade, weighed by sharp declines in European stocks. The DAX was off more than 3 percent in bear market territory, more than 22 percent below its 52-week high. Volkswagen continued to plunge following the news of an emissions scandal.
U.S. auto stocks plunged in sympathy.
“The S&P futures are sharply lower this morning, breaking down from their triangle formation,” BTIG Chief Technical Strategist Katie Stockton said in a morning note. “A close below 1940 by the SPX would mark a breakdown, supporting a retest of the August low near 1867. We think the downswing will ultimately present an intermediate-term buying opportunity, as per our latest Global Technical Strategy – Short-Term Overbought, but it is likely to cause some damage in the near term.”
Mainland Chinese stocks bucked the trend again with a 0.94 percent gain. The Hang Seng also ended mildly higher. Japanese markets were closed for a holiday.
“Before they told us the selling started in China, now (that’s) shifted to Europe ore here and that shows you overall the market’s getting weaker,” said Adam Sarhan, CEO of Sarhan Capital.
He’s watching to see if the S&P 500 can hold its Aug. 24 low of 1,867.
After a dovish statement from the U.S. Federal Reserve last week, recent comments from Fed officials suggest the central bank could lift rates before the end of the year.
St. Louis Fed chief James Bullard, for instance, told CNBC on Monday that a “powerful case” could be made for tightening monetary policy as the U.S. economy strengthens.
In a day of light economic news, the July US Federal Housing Finance Agency’s home price index showed an increase of 0.6 percent.
Attention will be on a meeting between China’s President Xi Jinping and U.S. President Barack Obama in Washington this week. In an interview with the Wall Street Journal published on Tuesday, Xi Jinping defended Beijing’s economic record and said reforms would continueeven amid slowing growth and stock market volatility.
On the earnings front, AutoZone, ConAgra, Darden and General Mills posted better-than-expected results.
The S&P 500 traded down 34 points, or 1.76 percent, at 1,932, with materials plunging more than 1.5 percent to lead all 10 sectors lower.
The Nasdaq traded down 96 points, or 4,732.
The Dow transports plunged more than 2.5 percent.
The CBOE Volatility Index (.VIX), widely considered the best gauge of fear in the market, ticked higher to trade near 23.
About six stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 191 million and a composite volume of 773 million in mid-morning trade.
Crude oil futures for October delivery fell $1.01 to $45.67 a barrel on the New York Mercantile Exchange. Gold futures fell $10.40 to $1,122.40 an ounce as of 10:33 a.m.