U.S. stocks closed more than 1 percent lower Tuesday as investors weighed declines in oil, concerns about global growth, and the implications of the Federal Reserve's rate hike decision. (Tweet This)
"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.
The major averages pared losses as the close approached, with the Dow Jones industrial trading less than 200 points lower after earlier falling as much as 288.46 points.
The Nasdaq composite underperformed to close down about 1.5 percent, clinging to gains for the year so far. Earlier, the index fell more than 2 percent to join the other major averages in negative territory for 2015.
The blue chip index was about 11 percent from its 52-week high, in correction territory. The S&P and Nasdaq remained within 10 percent of their 52-week highs.
"I think it's a bit of bottom fishing and tracking commodity prices," said Art Hogan, chief market strategist at Wunderlich Securities.
The S&P 500 recovered to close near 1,942. The index earlier traded near 1,935 after breaking a support band around 1,937/1,941, according to Art Cashin, director of floor operations for UBS. He also noted stocks were moving in step with declines in oil.
Crude oil futures recovered from a 3 percent intraday plunge to settle above session lows, down 85 cents, or 1.82 percent, at $45.83 a barrel.
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 in overseas trade.
Materials closed down 1.8 percent, after earlier plunging more than 2.5 percent, to lead all S&P sectors lower. Goldman Sachs, United Technologies and IBM put the greatest pressure on the blue chip index.
"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."
Analysts also pointed to a sharp plunge in Volkswagen that weighed heavily on European stocks and concerns about China's economic growth as President Xi Jinping visits the United States this week.
Brad McMillan, chief investment officer at Commonwealth Financial, singled out those two factors "just because they're contributing to a general lack of confidence. We're not seeing a move up."
The U.S. dollar traded higher against world currencies, with the euro near $1.11 and the yen at 120 yen against the greenback. The dollar hit a record against the Brazilian Real and a one-week high against the Mexican Peso.
Treasury yields held lower, with the 10-year yield at 2.14 percent and the at 0.67 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," Hogan said of morning trade. 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) halved losses in afternoon trade, off about 1.5 percent, after posting its worst day of 2015 Monday.
"It shows you the fragility of this market. It doesn't take much to shake confidence," said Anthony Valeri, investment strategist at LPL Financial. "Aside from the fragility, commodities are down pretty sharply. That's raising the whole emerging markets question."
The iShares MSCI Emerging Markets ETF (EEM) closed down nearly 2 percent.
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 closed down more than 3 percent in bear market territory, more than 22 percent below its 52-week high. Volkswagen extended losses following recent 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 over 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.
McMillan said "it's quite possible" stocks retest those August lows. "The damage to confidence was substantial and has to be overcome," he said.
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 continue even amid slowing growth and stock market volatility.
On the earnings front, AutoZone, ConAgra, Darden and General Mills posted better-than-expected results.
The closed down 24.23 points, or 1.23 percent, at 1,942.74, with materials plunging 1.8 percent to lead all 10 sectors lower.
The Nasdaq closed down 72.23 points, or 1.50 percent, at 4,756.72.
The Dow transports plunged 2.5 percent to close 15 percent below its 52-week high.
The CBOE Volatility Index (.VIX), widely considered the best gauge of fear in the market, ticked higher to trade just below 23.
About four stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 960 million and a composite volume of nearly 3.8 billion in the close.
Gold futures settled down $8.00 at $1,124.80 an ounce.
On tap this week:
Earnings: Autozone, CarMax, Carnival, Darden, General Mills
7:00 p.m.: Atlanta Fed's Lockhart
Earnings: Steelcase, Worthington Industries
9:45 a.m.: Manufacturing PMI
12:30 pm Atlanta Fed's Lockhart
Earnings: KB Home, Nike, Accenture, Bed Bath & Beyond, Pier 1 Imports, Jabil Circuit
8:30 a.m.: Initial claims
8:30 a.m.: Durable goods
10:00 a.m.: New home sales
5:00 p.m.: Fed Chair Janet Yellen on inflation/policy at University of Massachusetts
8:30 a.m.: Real GDP Q2 (third)
9:15 a.m.: St. Louis Fed's Bullard
1:25 p.m.: Kansas City Fed President Esther George
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