Treasury yields rose again, tempting more investors away from stocks.
The Dow Jones fell by more than 500 points, a drop of nearly 2pc, while the wider S&P 500 index fell for a fifth day straight, its worst run in nearly two years.
Although that's largely because the U.S. economy is so strong, the spike in rates for the benchmark United States 10-Year Treasury has investors wondering if the near-decade-old bull market may finally be ending.
After a long stretch of relative calm, the stock market has suffered sharp losses over the last week.
At the same time, the burgeoning trade war between the USA and China has been creating uncertainty on corporate earnings.
"A sustained rise in rates is probably reflective of improving economic conditions, so that in and of itself isn't necessarily a bad thing for stocks", said Willie Delwiche, investment strategist at Baird in Milwaukee. The Labor Department said its index of producer prices has climbed 2.6 percent over the last 12 months, the smallest increase since January.
The S&P 500 index sank 73 points, or 2.5 percent, to 2,807 as of 3:30 p.m. The benchmark USA stock index hadn't suffered a five-day losing streak since November 2016, just before the presidential election. The tech-heavy Nasdaq Composite was down by 2.4 percent. It's fallen sharply over the past five days.
Rising bond yields are raising the cost of borrowing to add to market fears. But over the past five days, the losses stuck, and on Wednesday the selling went on right to the closing bell.
Some of the big losers were stocks that have scored double-digits gains earlier in 2018.
The S&P technology sector dropped 4.8 percent, with Apple Inc creating the biggest drag with a 4.6 percent decline. Boeing lost 4 percent to $370.04 and Alphabet, Google's parent company, gave up 3.2 percent to $1,109.08. Insurance companies slumped as Hurricane Michael hit the Florida Panhandle. Berkshire Hathaway dipped 4.7 percent to $213.10 and reinsurer Everest Re slid 5.1 percent to $217.73. Tiffany plunged 10.2 percent to $110.38 and Ralph Lauren fell 8.4 percent to $116.96.
The 10-year Treasury yield rose to 3.22 percent from 3.20 percent late Tuesday after earlier touching 3.24 percent.
"It can be pretty well validated by looking at monetary history that when you inflate the currency, distort interest rates, and live beyond your means and spend too much, there has to be an adjustment", Paul told RT on Tuesday, predicting that a stock market crash is just a matter of time.
For example, a yield rise in a month of one standard deviation or less, which would be 20 basis points now, is manageable for stocks, Goldman said in a note last week.
Investors are leaning into safer stocks with steady dividends - utilities and consumer staples - and pulling out of the higher-paying, higher-risk stocks as other guideposts of growth, like the communication sector, tumbled. "Equity markets have enjoyed capital flows because bond yields have been so paltry". Higher rates can slow economic growth, erode corporate profits and make investors less willing to pay high prices for stocks.
"Amazon recently announced they were increasing wages, Facebook is spending a ton on security", she said.
Sears Holdings plunged 37 percent after the Wall Street Journal reported that the struggling retailer is preparing a bankruptcy filing.
Oil firms Hess Corp and Marathon Oil fell around 7 per cent as Chevron dropped 3 per cent ahead of the third-quarter earnings season.
USA crude settled down $1.79 at $73.17 per barrel and Brent fell $1.91 to settle at $83.09. The Fed has predicted that unemployment will remain below 4 percent through 2020 and inflation is expected to track around 2 percent, conditions that Federal Reserve chief Jerome H. Powell called "remarkably positive".
The S&P/TSX composite index closed down 336.65 points to 15,517.40, marking the biggest daily decline since September 2015. Natural gas rose 0.6 percent to $3.28 per 1,000 cubic feet.
US gold futures settled up $1.9, or 0.16 percent, at $1,193.4. Silver dipped 0.5 percent to $14.33 an ounce. Copper fell 0.9 percent to $2.78 a pound.
The S&P 500 fell 39 points, or 1.4 percent, to 2,840.
Tom Cahill of Ventura Wealth Management said investors were also unnerved by remarks from luxury company LVMH of a crackdown on some goods in China amid the country's bitter dispute with the United States. Brazil's Bovespa lost 2.5 percent and the Merval in Argentina sank 2.2 percent.
CURRENCIES: The dollar held steady at 113.05 Japanese yen. The euro rose to $1.1525 from $1.1496.