Stocks fell sharply on Friday, wiping out the Dow Jones Industrial Average's gain for January, as investors grew increasingly worried about the potential economic impact of China's fast-spreading coronavirus.
The Dow dropped 603.41 points, or 2.1%, to 28,256.03 in the 30-stock average's worst day since August. The S&P 500 had its worst day since October, falling 1.8% to 3,225.52. The Nasdaq Composite dropped 1.6% to 9,150.94.
On Friday, the U.S. declared the coronavirus a public health emergency within the country. Delta, American and United suspended all flights between China and the U.S.
The virus, which was first discovered in the Chinese city of Wuhan, has now spread to at least 18 other countries and has dampened sentiment over global economic growth. China's National Health Commission confirmed on Friday that there have been 9,692 confirmed cases of the coronavirus, with 213 deaths.
"There's fear going into the weekend," said Ilya Feygin, senior strategist at WallachBeth Capital. "The theme coming into this year was the Fed and Trump are going to bail us out of any problems, but the virus is something neither one can do anything about. That's a reason to become more fearful."
Las Vegas Sands, a proxy stock for the coronavirus given the company's exposure to the Chinese market, fell more than 1%. Airline stocks such as American and United dropped more than 3% each while Delta slid 2.4%. Travel stocks also got hit as the Trump administration imposed tighter travel restrictions to China.
The WHO recognized the deadly pneumonia-like virus as a global health emergency on Thursday, citing concern that the outbreak continues to spread to other countries with weaker health systems. WHO's designation was made to help the United Nations health agency mobilize financial and political support to contain the outbreak.
"The outbreak of the coronavirus has added another headwind to the near-term outlook for stocks," said Peter Berezin, chief global strategist at BCA Research, said in a note. "Viruses often become less lethal as they mutate because a virus that kills its host is also a virus that kills itself. Unfortunately, in a world of mass travel, a virus can spread across the globe before it has time to lose potency."
Caterpillar shares fell 3% after the industrial giant's CEO warned about "global economic uncertainty" in the company's latest quarterly earnings report, in part a reference to the virus. Caterpillar also issued disappointing earnings guidance for 2020.
On the positive side, Amazon shares surged 7.4% after the company posted a quarterly profit and revenue that easily beat analyst expectations. Amazon Web Services, the company's cloud business, saw stronger-than-expected revenues.
Investors are nearly halfway through the corporate earnings season. More than 70% of the 226 S&P 500 companies that have reported have beaten analyst earnings expectations, FactSet data shows.
The major averages saw an uptick in volatility this month as investors grappled with rising tensions between Iran and the U.S., trade worries with China and the recent coronavirus scare.
The S&P 500 closed marginally lower for January, snapping a four-month winning streak. The Dow also had its first monthly loss since August. The Nasdaq posted a 2% gain in January, its fifth-straight monthly advance.
The Cboe Volatility Index (VIX), widely considered to be the best fear gauge in the market, rose to just around 19 this month from 13.78, a gain of more than 37%.
Stocks could face some seasonal headwinds next month. February has not been the market's best month historically. Data from The Stock Trader's Almanac shows the S&P 500 averages a gain of just 0.1%. Investors will also face a number of obstacles in the new month, including worries over how the U.S. presidential election shakes out. Coronavirus fears could also persist in February.
"That's going to hurt China," said Tom Martin, senior portfolio manager at GLOBALT. "For an economy that is increasingly trying to transition to the consumer, it's definitely a headwind."
"When you start seeing real actions on the part of multinational companies, as well as people trying to put a number on it, it's no longer something that is not going to have an impact at all," Martin said.
—CNBC's Sam Meredith contributed to this report.