Adding to the sour mood was a sell off in emerging markets, with some impacted by the broader sell off, such as Mexico and Chile, and others reeling on their own stories, like Argentina, Turkey and Brazil. Brazil was impacted by China but also negative comments from Pimco on its finances.
(Read more: Brazil's Rousseff tries to woo jittery investors at Davos)
Argentina's currency plummeted Thursday amid signs its central bank was running low on foreign currency reserves. Turkey's central bank tried to prop its currency back up. Those currencies continued to weaken Friday.
(Read more: Chinese data's ripple effect on markets)
The big market washout also comes ahead of the Fed's meeting next week, where it is widely expected to vote to cut back on its bond buying program for a second time. The Fed in December voted to cut the program to $75 billion in monthly purchases from $85 billion.
"I think this has been a factor from the very beginning. The weakness we've seen in the last seven or eight months, its roots were embedded in changes in Fed tapering," said Alan Ruskin, head of G-10 currency strategy at Deutsche Bank. "The Fed is trying to tell us it's not tightening but EM currencies, or selective currencies see it as the beginning of less accommodation. We're still seeing the fallout."
(Read more: Turkey's lira plummets to record low)
Ruskin said the shakeout could continue, as interest rates in some countries aren't attractive enough for longer term investors. "If you want to really generalize, there is certainly fragility in the likes of Turkey, for example, Argentina. The other fragile five are still fragile," he said.
(Read more: Argentina surprises markets by relaxing currency controls)
"I think this is one where the markets are leading the fundamentals rather than the fundamentals are leading the markets," said Robert Sinche, global head of foreign exchange strategy at Pierpont Securities. "It's certainly not the Fed 's job to try to understand and respond to market sentiment. My sense is they'll be concerned but unmoved by what's going on and markets are going to have to sort themselves out."
Sinche said the market is also reflecting a reshuffling of positions, by investors who had gone with "conventional wisdom" trades of long stocks and short bonds at the beginning of the year and now need to adjust.
"History suggests when liquidity creation starts to slow, you get a pickup in volatility and we're probably going to see that over the next couple of months," Sinche said.
Burkly said he is keeping an eye on U.S. data, and is watching the Citigroup economic surprise index, which measures the beats and misses of economic data against economists' forecasts. It is seen as positive for stocks when the data beats forecasts, and the index is rising. Burkly said the index peaked about a week ago and looks to be rolling back down.
(Read more: Global slowdown scare sends stocks into tailspin)
"Obviously that would be the worst case scenario, the economic momentum starting to slow just as the Fed starts to ratchet things up. We do have these weather distortions in the data…we don't' think that's going to turn into much though," he said.
The sell off also comes in the first leg of an earnings season that has had its share of high profile disappointments, despite the fact that beats are handily outpacing misses. GE, IBM, Intel, Verizon and Johnson & Johnson all moved lower on misses, hurting the Dow. Microsoft delivered a positive surprise when it reported Thursday afternoon.
BMO Private Bank CIO Jack Ablin said the earnings look in line so far, but he was disappointed by GE and IBM in particular. "Those to me are great barometers of business. For this economy to run, I'd like to see a hand off from consumer to business," he said.
As for the sell off, he said it's unclear whether it is the beginning of something bigger though he'd said he would be a buyer of the market 10 to 15 percent cheaper, an area he says would be closer to fair value.
"China is a work in progress. …They'll get to where they need to be. It's just not going to [happen] at a point and click speed. Investors are going to get frustrated," he said.
As for the U.S. market, "we've got a relatively favorable market. As long as the economy continues to accelerate and liquidity is still pretty strong, we should be okay. It's possible we could get a 10 percent correction, and I'm not going to call clients and say we need to bail out."
—By CNBC's Patti Domm. Follow her on Twitter