A dismal report on U.S. retail spending and signs of slowing global growth drove stocks lower and sent yields on government bonds plunging as investors sought safety.
U.S. stocks fell from the start of trading on a report that consumers pulled back on spending last month and on a slump in European markets. At one point, the Dow Jones industrial average shed nearly 350 points.
At the close on Wall Street, the Dow Jones industrial average was down 186.6 points, or nearly 1.1 percent, at 17,427.1. The Standard & Poor's 500 index had lost 11.8 points, nearly 0.6 percent, to 2,011.3. The Nasdaq composite gave up 22.2 points, or about 0.5 percent, to 4,639.3.
Investors dumped some key commodities on fears global growth is stalling, pushing the price of copper to a five-year low, and they piled into German, British and U.S. government bonds. The yield on the 30-year U.S. Treasury fell to its lowest on record.
"We haven't seen volatility like this for years," said John Canally, investment strategist for LPL Financial. "People are more worried."
The U.S. Commerce Department reported that retail sales fell 0.9 percent in December, the biggest decline since January last year. The drop was a surprise to many investors because it showed consumers are still reluctant to spend despite lower gas prices and a pickup in hiring.
"There was a perception that the economy was improving, but that has gotten called into question," said Peter Tuz, a portfolio manager at Chase Investment Counsel, which manages $400 million in assets. "The savings from lower gas prices hasn't translated into higher consumer spending yet."
A report from the World Bank late Tuesday also weighed on markets. The bank lowered its forecast for global growth this year to 3 percent from 3.4 percent. It blamed sluggish economies in Europe and Japan and a slowdown in China.
The price of copper, a metal used in construction and manufacturing, fell 14 cents, or 5.2 percent, to close at $2.51 a pound following the World Bank's downgrade.
Investors buying up 10-year Treasury notes sent its yield, a benchmark for home loans and corporate borrowing, to 1.85 percent, its lowest since May 2013. The yield on the 30-year bond dropped below 2.4 percent for the first time.
Stocks are swinging more this year as investors become anxious. The Dow index was down as much as 348 points in the early afternoon, before gaining back much of its losses. On Tuesday, the difference between the Dow's high and low was more than 400 points.