Stocks tumbled more than 250 points Wednesday amid light volume as investors continued to lose confidence in the strength of the global economy in the wake of the Federal Reserve's dimmer outlook and a decline in China's domestic economy.
The Dow Jones Industrial Average was down about 250 points or more than 2 percent.
All 30 Dow components were lower, led by Alcoa , Boeing and General Electric .
Ninety-nine percent of S&P 500 stocks were trading lower while the Nasdaqwas down 3 percent, led by semiconductor stocks.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, soared more than 13 percent, topping 25.
The Federal Reserve's decision to continue purchases of government securities in long-term Treasurys, coupled with its grimmer outlook for the economy, rattled the market. But Robert Weissenstein, chief investment officer at Credit Suisse Private Banking Americas, said it's actually a good sign — that the Fed is simply being careful to keep the recovery on track.
And right now, he says, the market is being "underplayed."
"If earnings continue at the rate they’re going, and even if they come in lower than where expectations are, the equity markets are cheap," Weissenstein said. "People have priced in a pretty awful outcome."
All of 10 key S&P sectors were lower Wednesday, led by industrials, materials and financials.
The stock market's slide followed sharp losses in Europe and Japan. The dollar fell sharply to a 15-year low versus the yen, while the euro fell 2 percent against the dollar.
Market strategists said the sell-off may be due to light volume and technical factors, in that stocks have traded within a range for quite some time and the market was simply at the top of its range with no news to send it higher.
"You need a catalyst to pierce through on the high end of the range," said Linda Duessel, equity market strategist at Federated Investors.
Duessel said the strong earnings season should have been enough the propel the market higher, but it didn't.
"We’re filled with fear and uncertainty and we’re all on vacation anyway and we’re not trading," Duessel said.
Volume on the New York Stock Exchange has been below 1 billion shares. When there are more participants, the market is less reactive. "Here, it assumes a life of its own," said Doug Roberts, Chief Investment Strategist for Channel Capital Research.
Markets were lower across-the-board, but certain sectors were hit harder. Shares of large-cap companies with significant international exposure were suffering on worries over global economic weakness, including Caterpillar and DuPont.
Financials were mostly in the red, led by the large banks such as Bank of America , Citigroup and JPMorgan , which all fell more than 2 percent. Bank of America was trading at a 52-week low.
Meanwhile, Macy's jumped almost 4 percent after the department-store chain reported better-than-expected results and raised its outlook. S&P Equity raised its price target on the retailer to $25 from $22.
In other retail news, Gap fell after Wedbush Securities downgraded its rating on the stock to "neutral" from "outperform," saying the retailer is failing to hold on to shoppers.
Walt Disney was lower, even though the entertainment giant reported higher profit and sales that beat estimates, thanks to a boost from sports network ESPN and a turnaround at its movie studio. Theme park attendance, however, was down domestically.
Nestle reported positive results and raised its outlook for the yearbased on strong demand for its products in emerging markets. The Swiss food company said sales in its foods and beverages business should grow 5 percent, better than earlier expectations.
Results from networking-gear maker Cisco Systems are due after the bell. A good report, with a positive outlook, could send stocks higher in after-market trading, said Roberts of Channel Capital.
Dell dropped more than 3 percent ahead of the computer maker's plans later this week to sell a tablet to compete with Apple's iPad. The Dell "Streak," as it's called, is a five-inch tablet that will run on Google's Android operating system.