A dismal report on retail spending in the U.S. 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.
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 Commerce Department reported that retail sales fell 0.9% 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% from 3.4%. 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%, 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%, its lowest since May 2013. The yield on the 30-year bond dropped below 2.4% for the first time.
The Standard & Poor's 500 index fell 11.76 points, 0.6%, to 2,011.27 The S&P 500 is heading for its third straight week of losses.
The Nasdaq composite fell 22.18 points, or 0.5%, to 4,639.32 And the Dow Jones industrial average dropped 186.59 points, or 1.1%, to 17,427.09.
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.
Investors will turn their attention next to more corporate earnings reports. A handful of big companies are expected to report Thursday, including giant money manager BlackRock, energy company Schlumberger and Intel Corp., the world's largest chip maker.
Overall, companies in the S&P 500 are expected to report a modest 4.5% increase in fourth-quarter earnings per share compared with a year ago, according to S&P Capital IQ.
Among stocks making big moves:
— The drop in commodities pushed mining giant Freeport-McMoRan down $2.30, or 11%, to $18.74.
— JPMorgan Chase fell $2.03, or 3.5%, to $56.81 after reporting a 7% drop in fourth-quarter earnings. The bank was hit by more legal costs and a decline in trading revenue.
— GameStop jumped nearly 11%, the biggest gain in the S&P 500, after its CEO reported strong sales in gaming software sales during the holiday shopping season. The stock rose $3.44 to $36.21.
The price of oil surged, despite a large increase in U.S. oil stockpiles, on a weaker dollar and traders' expectations that oil had fallen too far recently. Benchmark U.S. crude rose $2.59 to close at $48.48 a barrel in New York. Brent crude, a benchmark for international oils used by many U.S. refineries, rose $2.10 to close at $48.69 in London.
In other futures trading on the NYMEX:
— Wholesale gasoline rose 8.2 cents to close at $1.351 a gallon.
— Heating oil rose 2.2 cents to close at $1.655 a gallon.
— Natural gas rose 29 cents to close at $3.233 per 1,000 cubic feet.