Stocks posted sharp declines across the board Wednesday, with the Dow ending below 15,000, following weakness in overseas markets and amid concerns over when the Fed will start tapering its bond-buying program on the heels of several mixed economic reports.
"There has to be some sort of convergence between stock prices and economic data," said Sal Arnuk, co-manager of trading at Themis, noting that the move lower has been "quiet and orderly" with "adequate volume." "The selloff's based on lukewarm economic data, fear over Fed tapering and it's also somewhat natural given the highs we've recently made."
The Dow Jones Industrial Average suffered its worst one-day drop in nearly two months, tumbling 216.95 points, or 1.43 percent, to close at 14,960.59, led by Alcoa and Walt Disney. The Dow has declined 1.92 percent over the last two days, logging its biggest two-day drop since November.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, spiked above 17.
All key S&P sectors were in the red, dragged by materials and financials.
(Read More: June Market Swoon Ahead? Maybe Not, Traders Say)
"For most of the year, the best thing that could happen for the market was to get data that were not too hot and not too cold—that would drive the Fed to keep QE and continue to provide liquidity for the markets," said Michael Sheldon, chief market strategist at RDM Financial Group. "However, at some point, if the economic data start to deteriorate, then instead of bad news becoming good news, the bad news may just be bad news. In other words, if the economic data really start to turn lower, investors may start to wonder whether the Fed really has any power left to turn the economy around."
The private sector created just 135,000 jobs in May, according to the ADP National Employment Report, less than estimates for 165,000. The report came two ahead of the government's widely-watched monthly labor report, which includes both public and private sector employment. Economists surveyed by Reuters expect to see a gain of 170,000 jobs, slightly higher than the 165,000 jobs added in April.
Lee Hardman, a currency economist at Bank of Tokyo-Mitsubishi, noted that the ADP report has been an inaccurate predictor of nonfarm private payrolls so far in 2013, over or underestimating numbers by nearly 50,000 on average each month. Traders, however, have used the weak economic conditions to keep hopes up that the Federal Reserve will not back off its easing measures anytime soon.
(Read More: Traders Confused: Is Jobs Market Improving or Not?)
Meanwhile,the pace of activity in the services sector ticked slightly higher in May, according to the Institute for Supply Management's services index. A reading above 50 indicates expansion in the sector. However, a key employment measure slipped to the lowest level since last July.
"The ADP employment data and the employment component within the ISM services report, while not perfect, provide a hit that this month's employment data may be on the softer side," said Sheldon.
(Read More: Why Bad News Soon May Just Become...Bad News)
Meanwhile, economic expansion increased throughout the U.S. from April through mid-May, with eleven of the Fed's banking districts reporting "modest to moderate" growth, according to the Federal Reserve's latest region-by-region Beige Book survey.
In other economic news, factory orders rose 1 percent in April, recovering from a 4.7 percent drop in March, according to the Commerce Department. And unit labor costs tumbled 4.3 percent, while productivity rose 0.5 percent.
Earlier, the Japanese Nikkei tumbled nearly 4 percent when Prime Minister Shinzo Abe's third "Abenomics" arrow to boost the economy failed to impress investors. Other Asian indexes and European bourses also traded lower on the news.
"The comments made by Abe today were not really a game changer and disappointed a market which seems to have been positioned for a USD/JPY and Nikkei rally," wrote IG Index market strategist Stan Shamu.
(Read More: Japan Fires 'Third Arrow,' Execution Now Key)
The so-called third arrow of Abe's growth-reviving strategy follows monetary and fiscal stimulus measures that were put into place earlier this year. So far, however, Japanese stocks have remained jittery on fears of a tapering of stimulus measures by the Federal Reserve, and stuttering growth in China.
In company news, Apple declined after the U.S. International Trade Commission ruled that the company infringed on a patent owned by Samsung and issued a limited order stopping all imports and sales for AT&T models of the iPhone 4, iPhone 3GS, iPad 3G and iPad 2 3G.
(Read More: With Latest Ban, Has Samsung Cornered Apple?)
Juniper Networks zipped higher to lead the S&P 500 gainers after the networking equipment company's CEO Kevin Johnson said demand from its crucial telecom customer base looked better than previous years.
The Treasury Department said it will sell an additional 30 million shares of General Motors common stock from the government's bailout of the U.S. auto sector. The Treasury said it will finish its exit by early next year.
JPMorgan Chase will take an $842 million hit due to the bankruptcy of Jefferson County, Ala., the company said.
Hovnanian rose after the homebuilder posted quarterly results that topped expectations.
The Mortgage Bankers Association said home loan applications fell 11.5 percent last week as interest rates climbed past 4 percent for the first time in a year.
—By CNBC's JeeYeon Park. Follow JeeYeon on Twitter: @JeeYeonParkCNBC
What's Happening This Week:
THURSDAY: Bank of England announcement, Challenger job-cut report, ECB announcement, jobless claims, quarterly services survey, natural gas inventories, Fed balance sheet/money supply, chain store sales, Wal-Mart shareholder mtg, Google shareholder mtg, GM annual mtg; Earnings from Ann, JM Smucker, Cooper Cos., Vail Resorts
FRIDAY: Employment situation, consumer credit
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