The US Dow Jones stock index plunged 4.6 percent Monday, in its biggest one-day percentage loss since 2011. The selloff has wiped off all its gains since the start of 2018. Asia shares have also been down sharply.
Wall Street, which kicked off a global selloff on Friday, plummeted again on Monday, with the S&P 500 and the blue-chip Dow Jones both slumping by more than four percent.
The Dow Jones Industrial Average, an index of 30 major US corporations, closed at 24,346.13, down 4.6 percent while the broad-based S&P 500 dropped 4.1 percent to 2,648.49 and the tech-heavy Nasdaq Composite Index fell 3.8 percent to 6,969.45.
Banks fell the most as bond yields and interest rates all plunged. Health care, technology and industrial companies all dropped steeply while energy companies and oil prices sank.
Monday's losses erased the market's 2018 gains and ended a period of unusual calm for stocks. It was the Dow Jones industrials' biggest loss in absolute points in history and the biggest percentage drop since 2011.
In early trading in Asia on Tuesday, Tokyo's Nikkei led a collapse throughout the region with a 7.1 percent plunge as investors worried about US borrowing costs. Seoul and Singapore were both down three percent; Manila dropped two percent; Shangai was off 2.1 percent and Taipei was down 4.5 percent.
"It is a long awaited correction triggered by investors' interest rate hike fear," said Hong Kong analyst Ben Kwong. "Profit taking on heavily overbought shares may keep the correction for a while until valuation turns to relatively attractive levels."
Some analysts called on investors to keep calm in the face of the selling pressure. "The correction seen over the past week is hardly a reason to panic," said John Higgins, an analyst at Capital Economics.
The White House issued a statement after the drop on Wall Street, saying, "The president's focus is on our long-term economic fundamentals." President Donald Trump has often taken credit for gains in the stock market since his 2016 election.
Wall Street tumbled 2.5 percent on Friday after the release of a healthy January jobs report that showed the biggest increase in wages in nine years. That catapulted 10-year Treasury yields — a key global interest rates indicator — to fresh four-year highs.
American turmoil in turn triggered fresh losses in Asia earlier Monday, with traders fretting that a resurgent US economy will lead to rapid interest rate rises by the Federal Reserve.
The selling was fuelled also by profit-taking after a blistering January that saw several indexes strike record or multi-year highs, while energy firms were hit by a drop in oil prices.
"Stocks look like they are set for a correction of some sorts after huge losses over the last few sessions that has left many bulls worried that the bull run may have come to an end," said AxiTrader analyst James Hughes.
On Friday, New York's Dow closed down 666 points, with the S&P and Nasdaq also down sharply. "Europe is catching the virus and is aggressively lower," said Hughes. "The issue with this kind of fall is that it becomes a snowball effect, and after such astronomical gains since election day 2016 the falls can be equally as aggressive, but nobody could say that a correction has not been due."
A market correction is usually defined as a drop of more than 10 percent from recent highs. At the end of trading on Friday the Dow stood down 4.1 percent from a record high struck on January 26.
But Higgins at Capital Economics noted that the broad S&P index was still three percent higher than at the start of the year, even after losing four percent since January 26. "Overall, we are not convinced that this is the start of a major correction in the stock market, as the fundamentals remain healthy for now," he said.
Wall Street has enjoyed a record-breaking run ever since Trump's election on hopes of a beneficial impact from the US president's pro-business tax-cutting policies. But many equity markets were already in negative territory last week owing to rising bond yields and profit-taking.
The rise in bond yields, fuelled by a surging US economy and corporate earnings, has spooked traders, worried that the Fed will raise borrowing costs more than the three times initially expected this year. "It's an equity storm, created by the pressure from bonds," noted ETX Capital analyst Neil Wilson. "Equity nervousness seems to be about repricing for higher yields and tighter Fed policy."
Monday's falls coincided with new Federal Reserve chairman Jerome Powell being officially sworn in.
aw, uhe/aos (Reuters, AFP, dpa)