US stocks saw their biggest one-day fall in six years on Monday, as investor profit taking brought the market back down from record highs seen in late January, after benchmark bond yields rose to a four year high last week.
The Dow Jones Industrial Average fell nearly 1,600 points for its biggest intraday drop in history in points terms, or more than 6.0 percent, before ending down 1,175.21 points, or 4.6 percent for its biggest one-day fall since August 2011.
Only last month the Dow and benchmark S&P 500 index had their best monthly gains in two years, with stocks reaching record levels on Jan. 26, supported by the benefit of a cut in U.S. corporate taxes in December, rising earnings, and healthy global economic growth.
But with the Federal Reserve seen likely to raise short term interest rates another three or four times in 2018, bond yields have been rising, and last Friday's healthy U.S. labour market report sparked fears of rising inflation, leading to Monday's sharp bout of profit taking.
"The market is looking for a new sustainable valuation level for both stocks and bonds, and that to me is the underlying catalyst," said Jim Paulsen, chief investment strategist at Leuthold Grup in Minneapolis.
The CBoe Volatility index closed at its highest since August 2015.
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Selling hit all S&P sectors, though the S&P financial index, down 5.0 percent, was the biggest daily percentage decliner, followed by healthcare, down 4.6 percent.
"It looks to me like a typical type of scenario when you see a single stock flash crash where you'll see bids just disappear, stop orders get kicked," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "The overall market could have taken a cue from some of the bigger names."
The Dow Jones Industrial Average fell 1,175.21 points, or 4.6 percent, to 24,345.75, the S&P 500 lost 113.19 points, or 4.10 percent, to 2,648.94 and the Nasdaq Composite dropped 273.42 points, or 3.78 percent, to 6,967.53.
The pan-European FTSEurofirst 300 index lost 1.51 percent and MSCI's gauge of stocks across the globe shed 2.96 percent.
After rising sharply last week, U.S. Treasury yields fell from four-year highs on Monday as the selloff in equity markets sparked demand for low risk debt.
Benchmark U.S. 10-year note yields surged to 2.885 percent overnight, the highest since January 2014, following data Friday that showed hourly wages rose in January.
The 10-year notes last rose 38/32 in price to yield 2.7093 percent, down from 2.852 percent late on Friday.
The U.S. dollar rose against a basket of currencies as the U.S. bond market selloff levelled off.
The dollar index rose 0.49 percent, with the euro last up 0.06 percent to $1.2375.
Oil prices settled lower, pressured by rising U.S. output and other factors.
U.S. crude fell 1.99 percent to $64.15 a barrel, while Brent fell 1.4 percent to $67.62.
Spot gold steadied at $1,334.40 an ounce.
