Stocks pulled back Monday after logging their best five-day streak in 75 years last week.
The Dow Jones Industrial Average shed more than 400 points, or nearly 5 percent, after gaining more than 1,200 points in the prior five serssions.
The S&P 500 index and Nasdaq also fell sharply, with both down more than 5.5 percent. The tech-heavy Nasdaq was the hardest hit among the three amid worries about the impact of the slowdown on tech spending.
Speaking of the slowdown, it's official: We're in recession. And have been for a year. The National Bureau of Economic Research officially declared today that the U.S. economy slipped into recession in December 2007.
Today's economic data backed up the call: The Institute for Supply Management reported its manufacturing index fell to 36.2 in November, the weakest reading since 1982. Readings below 50 indicate contraction. This came on the heels of reports of weaker manufacturing activity in China and Europe.
A separate report showed U.S. construction spending fell 1.2 percent in October after holding steady in September.
And, while early projections indicate Black Friday sales rose 3 percent from last year, retail stocks fell more than 4 percentamid worries that increased traffic won't translate into profits and this will be one of the worst holiday seasons for retailers in decades.
"Things are looking quite bleak. Everyone acknowledges that," Brian Gendreau, investment strategist at ING Investment Management, told Reuters. "The question is to what extent is that already priced into the markets. Apparently, not entirely."
Department-store operators took it on the chin, with big declines in Macy's and JC Penney .
But, even the discount chains were hard hit, with Wal-Mart , Big Lots and Target falling sharply.
Shoppers are expected to hit online stores in droves today, "Cyber Monday," as the Monday after Thanksgiving has come to be known, but investors weren't buying it, sending shares of online retailers Amazon and eBay lower as well.
>> Check in on how the holiday season is shaping up at CNBC's Holiday Central.
Worse news looks set for consumer and credit markets, as the credit-card industry may pull back more than $2 trillion of lines of credit over the next year-and-a-half due to risk aversion and regulatory changes, Oppenheimer & Co. banking analyst Meredith Whitney said in a research note.
Johnson & Johnson shares dropped after the company announced it was acquiring surgical products manufacturer Mentor for $1.07 billion or $31 a share, a nearly 100 percent premium on the company's Friday closing price. Mentor shares surged more than 85 percent in premarket trading.
Ford shares retreated, after earlier being the biggest gainer on the S&P 500, after the auto maker said it's mulling options for its premium brand Volvo, including a possible sale of the Sweden-based division.
General Motors skidded after the auto maker's board met Sunday to review a restructuring plan intended to cut costs and win support for up to $12 billion in emergency funding from the U.S. government. GM is due to present a viability plan to Congress on Tuesday.
Sources inside Yahoo and Microsoft told CNBC a deal in which Microsoft would by Yahoo's search division was not imminent, despite a report in the Sunday Times that claimed the two were nearing an agreement on the issue.
Yahoo shares rose, while Microsoft fell.
Financial stocks tumbled. Citigroup lost more than 10 percent after an analyst projected more losses for the bank. Fellow Dow components Bank of America and JPMorgan also fell sharply.
Asian stocks closed mixed, with the Nikkei down 1.35 percent but the Shanghai Composite up 1.25 percent.
In Europe, last week's rally fizzled as well and stocks were lower, with banks and commodities stocks leading overall markets down.