Stocks were sharply lower Monday, on selling that began before the open, as gold and other commodities spiraled lower. Margin calls added to the selling pressure, as investors moved out of risk assets and into cash. The Dow Jones Industrial Average ended down 1.8 percent, or 265 points to 14,559, and the S&P 500 was down 2.3 percent to 1552. Gold plunged 9.3 percent to $1361.10, its biggest one day drop since 1980. Silver lost 13 percent, and WTI crude fell 4.4 percent.
(Read More: Gold Hit by Panic Selling, Dragging Other Metals)
In the final hour, investors rushed the S&P 500 options pit. The VIX spiked, ending the day 43 percent higher at 17.27.
"Guys came in and started buying May and April out-of-the-money puts. We saw a lot of customers right when the initial news was coming out. People were coming in and buying puts purely for a directional trade," said Patrick Kernan of Cardinal Capital. "It wasn't just like one customer was doing it. It was across the board. We think it was a knee-jerk reaction to the bombings."
"The volatility was going up in gaps, which equates to a lot of uncertainty," he said. Kernan said if there are no other events, the market could calm down Tuesday. S&P 500 futures were slightly higher in the electronic evening session.
Monday's sell-off, even before the late day downdraft, had traders already questioning whether the long-awaited stock market pullback had begun.
"It certainly has the elements of the correction we've been waiting for. Single catalysts haven't been enough to slow this market down. … Now you sort of string things together, with the China demand story, earnings season and two weeks of somewhat weaker economic data. That does set the table for it," said Art Hogan of Lazard Capital Markets. Commodities, already moving lower last week, were hit hard by China's report early Monday that first-quarter gross domestic product growth was 7.7 percent, less than the 8 percent expected.
Carter Worth, chief technician at Oppenheimer Asset Management, says the stock-market sell-off is overdue, but it was unclear if this is the beginning of a bigger sell-off. The S&P 500 is up 8.9 percent year-to-date.
"The worst part is people are really invested now. The retail investor has been pouring in money in since January," said Worth. He said there's a warning in how the markets have been trading, prior to Monday's decline. "It's copper. It's oil. It's gold. It's the Bovespa. The Kospi in Korea. Everything is getting pounded, and the S&P goes higher every day. It's absurd and everyone knows it. It's like a game of chicken. The fear of missing out is a powerful thing."
(Read More: Wall Street Soars as Rest of Economy Limps Along)
Worth said the market has become bifurcated, and unlike the past three years where there were spring swoons, the safety stocks are now expensive. Home builders, which helped lead the market higher, were down sharply Monday, with the SPDR S&P Home Builders ETF XHB down five percent.
"The classic place to rotate is into staples or health care. When you do get nervous about asset-class equities, you rotate into safety," he said. "For the first time in three years, the safety names are already full.This time it ended with nowhere to move."
What to Watch
Tuesday has plenty of earnings news for investors to consider. Goldman Sachs, BlackRock, Coca-Cola, Johnson & Johnson, Northern Trust, US Bancorp, and TD Ameritrade report before the opening bell. Intel, Yahoo, and CSX report after the close Tuesday.
There is also Consumer Price Index and housing starts, both at 8:30 a.m. and industrial production at 9:15 a.m.
"One of the mainstays of this economy has been the housing market," said McCarthy. "If we were to get a big disappointment in housing starts that would continue to keep this (Treasury) market going. Some of the numbers we've seen over the last few days probably are reducing the market anxiety about the Fed tapering."
(Read More: Fight or Flight: Get Ready for the Earnings Crush)
Several Federal Reserve speakers are out on Tuesday and their remarks will be watched closely for any comments on when the Fed could "taper" its $85 billion monthly asset purchases. New York Fed President William Dudley speaks at 8 a.m. ET on the economy, and Chicago Fed President Charles Evan speaks at 9 a.m. on what lies ahead.
Minneapolis Fed President Narayana Kocherlakota speaks at 4 p.m. on improving the outlook, and Fed Gov. Elizabeth Duke speaks to an American Bankers Association conference at 12 p.m.