The CBOE Volatility Index , an options gauge of trader fear, surged 17 percent.
Across other markets, a rising U.S. dollar put pressure on commodity prices, sending gold below $1,600 an ounce and oil under $80 a barrel on a deflation trade. Silver was on track to close at a 17-month low.
The fall in energy stocks ripped across the explorers space, including Hess and others.
Homebuilder stocks also took a beating off the bad housing news, with the iShares Dow Jones Home Construction ETF slumping more than 3 percent.
Yields on government debt fell on safe haven demand, with the benchmark 10-year note dropping to 1.60 percent.
Market volume was average, with about 3.9 billion shares changing hands. Breadth was sharply negative with decliners clobbering advancers 4 to 1.
In company news, Best Buy dropped after the electronics retailer authorized a 6 percent dividend increase.
Bed, Bath and Beyond shares hit a two-year low after the company issued a downbeat earnings forecast after the closing bell Wednesday.
Chesapeake Energy shares fell as the company said it named five new independent directors to help oversee the troubled firm, including a new chairman to replace Aubrey McClendon, the CEO who has come under fire in recent weeks.
In earnings news, ConAgra Foods turned a profit of 51 cents a share in the quarter, a penny better than expectations, though sales were a shade below expectations.
Celgene shares plunged more than 10 percent after the drugmaker said it is withdrawing its application for new uses for its Revlimid drug, but plans to resubmit its application with more "mature data."
TJX shares climbed following an upgrade to "outperform" from "market perform" at Wells Fargo, which also raised earnings estimates for the T.J. Maxx parent.
Overnight in Asia, the HSBC Flash Purchasing Managers Index, which tracks activity in the private sector, showed China's factory output contracted for an eighth straight month in June. Export orders and prices turned in their weakest showing since early 2009.
European equities reversed losses after Spanish bond yields eased despite an auction that saw five-year paper hit a 15-year high. Stocks also sold off in Asia, dented by the weak Chinese data and disappointment over the extent of stimulus announced by the Fed.
Also in company news, Johnson & Johnson is close to reaching a settlement with the U.S. Justice Department over allegations it promoted anti psychotic drug Risperdal for unapproved uses that could cost the healthcare conglomerate at least $1.5 billion, the Wall Street Journal reported.