The Dow Jones industrial average plunged a heart-stopping 1,500 points in afternoon trading on Monday before gaining back some ground - and finishing at 24,342, or down 4.6 percent - as volatility returned to the stock market with a vengeance after a year of rare tranquility.
The Dow has swung more than 2,100 points in the last two sessions, a decline pushing more than 8 percent and shattering long-term momentum. The index gave up 500 points in a matter of minutes Monday afternoon as Wall Street wags tried to decode events.
One of the big worries is that the Federal Reserve, under new chairman Jerome Powell who was officially sworn in Monday, will accelerate interest rate hikes and slow the economy. A slowing economy would likely turn the bull market toward bearish.
There was also focus on the 10-year Treasury bond, a closely watched harbinger of investor sentiment. The yield's rise toward 3 percent is widely believed to be a marker for investors to eschew equities for the appetizing stability of bonds.
"If the yield on the 10-year hits 3 percent in the next several days, equities are likely to decline dramatically because of fears of the Federal Reserve aggressively slowing down the economy by raising interest rates," said James Norman, president of QS Investors.
Bond yields are rising as the Federal Reserve trims its U.S. bond holdings. The U.S. Treasury is also having to borrow more money, partly because of the tax cuts, and issuing more debt tends to raise yields.
The stock market has lost $1 trillion in value in the first five days of February.
"People are not eager to buy stocks on a day like today," said Wayne Wicker, chief investment officer at ICMA Retirement Corp. "Investors are looking at high gross domestic product growth in the first quarter. For people buying equities, that should be a positive. It will be, but not today."
Monday's big skid - which was the largest intraday trading drop in Dow history - came on the heels of Friday's 666-point Dow decline, the sixth-highest point drop in Dow history but only around 2.5 percent from its lofty highs.
The Standard & Poor's 500-stock index was down four of the last five sessions heading into Monday. The technology-laden Nasdaq was down six of its last eight sessions as markets opened Monday.
Blackstone Group chief operating officer Tony James said in an interview on CNBC's Squawk Box Monday that stocks were "fully valued" and "you could easily see a 10 to 20 percent correction sometime this year."
Many observers believe healthy corporate earnings justify the robust stock prices. With half of the S&P 500 reporting earnings so far this season, more than 80 percent of companies are beating expectations.
"I see this decline as an opportunity given that corporate earnings are rising, interest rates remain low, despite having risen recently, and economic indicators are pointing up," said Daniel P. Wiener, chief executive of Adviser Investments, a Newton, Mass.-based firm. "Even at 2.85 percent, the 10-year's yield is simply back to where it was four years ago. It's not setting some new kind of record other than its rapid ascent."
Foreign indexes were down across the board as worries over inflation and rising U.S. Treasury bond yields swept through financial markets. The FTSE was down 1.46 percent and the Nikkei 225 finished down 2.55 percent.
Utilities, Real Estate Investment Trusts and other reliable, dividend-heavy stocks that resemble bonds are being hit by the rise in bond yields. Stocks were hit hard across the board with only technology surviving Monday's bloodletting in the Dow. Apple, Cisco, Intel and Microsoft were all on the upside as the rest of the 30-stock blue chip index went negative.
Delta, Chevron, Hess and D.R. Horton are all more than 10 percent off their 52-week highs as the market retreats.
Many hailed the bounce in the markets over the last week as part of the natural ebb and flow of stocks. The relative serenity over the last year where markets seemed on a relentless, upward arc is an anomaly.
Luke Tilley, chief economist at Wilmington Trust, the wealth and investment advisory arm of M&T Bank, said a correction would be healthy for the market because it would return some element of volatility, which has been markedly absent over the past year.
"Ultimately," he said, "the bottom line is investors are dealing with a highly valued equity market that is supported by strong economic data in earnings."
The market volatility arrived last week after an unusually long period when it appeared there was no stopping its upward march. The S&P 500 in January saw its 10th consecutive monthly gain, the longest in 59 years.
Friday's markets went tumbling on good economic news as the Labor Department reported a 2.9 percent increase in hourly earnings. That's good news for workers but creates nervousness among equity investors concerned that the rise will fuel inflation.
The 10-year bond was trading at 2.851 percent on Monday, short of the feared 3 percent marker where investors consider leaving equities for the relative safe returns of bonds.
But inflation worries abound, with some harkening back to the grim economics of the 1970s when inflation soared into double digits.
"Inflation is the current bugbear but it's also a convenient excuse for taking profits in a new year when tax rates have fallen, on short term gains at least, given the heights to which the market has risen," Wiener said.
There was more good news on Monday as the Institute for Supply Managment reported a surge in service industry orders that was the fastest pace in a decade.
"The service side of the economy was very robust in January," Tilley said. "The economy is still doing well."
The market has not had a 5 percent correction for more than 400 days. Historically, corrections of 5 percent occur every 90 to 120 days.