The Dow plunged nearly 832 points on Wednesday, the third-worst point decline in history.
All 30 Dow stocks were in the red, sending the index below 26,000 points for the first time in a month. The index fell by more than 3%.
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International markets followed the downward trend. The Nikkei was down more than 3% in morning trading Thursday.
Stocks are in the midst of a scary October slump, sliding sharply because investors are worried about rising interest rates.
October has often been a nerve-racking month for investors, and this month is living up to that reputation. All three indexes are in the red this month. But the Nasdaq has really taken it on the chin: It has plunged nearly 8% already in October.
The Dow's point decline was the worst since February, when the index fell by more than 1,000 -- twice. The Dow's percentage decline doesn't crack the top percentage declines. The index fell 23% in 1914 and on "Black Monday" in 1987.
The Technology Select Sector SPDR Fund, a proxy for the tech sector, plunged 4.85%. That hadn't happened since August 2011.
Why stocks are plunging
Tech is taking its lumps because bond yields have climbed in recent weeks, hovering at a more-than-seven-year high.
Although that's largely because the US economy is so strong, the spike in rates for the benchmark US 10-Year Treasury has investors wondering if the near-decade-old bull market may finally be ending.
Higher long-term rates could slow down red hot sectors of the economy, including technology, especially as the Federal Reserve seems intent on raising short-term rates for the foreseeable future. Higher rates increase borrowing costs, pinching corporate profits.
Investors may want to shift out of momentum and into more defensive stocks -- companies that aren't as expensive and also pay healthy, stable dividends.
Continued worries about a slowdown in China's economy -- especially as trade tension with the United States has escalated -- were also dragging down the broader market.
Who's up and who's down
Tech leaders Amazon (AMZN), Facebook (FB) and Netflix (NFLX) all helped lead the market lower Wednesday while stodgier companies like food companies Smucker (SJM) and General Mills (GIS), gold miner Newmont (NEM) and bargain retailers Dollar General (DG) and Dollar Tree (DLTR) finished the day higher.
But there were few places to hide Wednesday. Only 17 stocks in the S&P 500 wound up with a gain. Even utility stocks, which tend to pay big dividends, fell slightly Wednesday.
Volatility has returned with a vengeance. The CBOE Volatility Index, or VIX, a market barometer often dubbed Wall Street's fear gauge, surged nearly 40%.
And the CNNBusiness Fear & Greed Index, which looks at the VIX and several other indicators of market sentiment, plunged into Extreme Fear mode. It was showing signs of Greed just a month ago.
What to do when the market turns south
Some experts said this isn't a time to panic.
The pullback -- particularly for tech stocks -- is needed, argued Joe Heider, president of Cirrus Wealth Management.
"The selloff is healthy," Heider said. "Since the market bottomed in March 2009, it's been nearly 10 years of growth stocks leading the way non-stop."
Investors were "selling first and asking questions later," said John Augustine, chief investment officer with Huntington Private Bank.
Augustine added that with earnings due out from big banks JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) on Friday morning, investors will look for new market sectors to take the lead from tech stocks. In theory, banks should do better if the Fed keeps raising interest rates and bond yields climb higher since it will make their loans more profitable.
And Geoff Alexander, the president of R. M. Davis, a wealth management firm, said he wasn't getting too nervous about Wednesday's market madness either.
As long as earnings and the US economy are continuing to grow, this market pullback will wind up being a healthy dip, Alexander said. The relative lack of volatility was a bit troubling. This slide was long overdue.
"We've scratched our heads about the rise in stocks for the past 18 months. But this is nothing to be overly concerned about," Alexander said.
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