Weak U.S. manufacturing data, on top of more news of slowing activity in China, sent stocks into a tailspin and signaled to some traders that the correction could be deeper than they expected.
The big slide—taking the 2.3 percent lower—came amid fireworks in other markets. The fell nearly 2 percent, sending the index into a correction of over 10 percent since the beginning of the year. The dollar weakened, the yen rose and emerging markets continued to flounder. The VIX, the CBOE's volatility index, shot up nearly 15 percent to over 21.
(Read more: Stocks unravel after factory report)
The Institute for Supply Management manufacturing index showed Monday that activity had fallen to an eight-month low of 51.3 in January, well below the 56.5 in December. New orders plunged to 51.2, a drop of 13.2 percentage points from December. The index still shows expansion because it is above 50, but it is far weaker than expected and raised red flags that U.S. growth may be slower than thought.
(Read more: Stocks down in January...if history repeats!)