Stampede to the Exits

It's somehow poetic that a plunge of almost 9% in China's stock market sparked the most panic-stricken day in the U.S. stock market since the Sept. 11, 2001, terrorist attacks. China is our silent partner in sustaining economic growth via the symbiotic relationship of its excess savings and cheap labor fueling our excess spending and debt.

So when already jittery traders saw China's stock market and other world markets plunge overnight and U.S. durable goods orders come in much weaker than expected, investors decided it was finally time to redefine risk and take money off the table.

On the heels of Monday's record-setting M&A transaction and former Fed Chairman Alan Greenspan's talk of recession, the market that was "due for a correction" finally hit its payday.

"This could be an inflection point here," says Randy Diamond, trader at Miller Tabak. "We're finally getting one of those days ... the kind of day we haven't had in a long time."

The action was panicky and dramatic, and the carnage may get only worse. Not only are there several key data points this week that could provide more grist for the bears, including a revision to fourth-quarter GDP growth Wednesday, but the emerging-market corrections could be amplified by the wildness of the U.S. session.

After a day of pure red, the last hour of trading ratcheted the damage and the fear to bloodbath status.

"The breadth and intensity of the selling was at levels last seen during the crash of 1987," wrote RealMoney.com contributor James "Rev Shark" DePorre.

The Dow Jones Industrial Average was already down nearly 300 points heading into the final hour of trading, then gapped down to register a massive 546-point decline shortly after 3 p.m. EST. The Dow rebounded more than 100 points within a few minutes, closing down 416 points, or 3.3% to 12,216.24. The S&P 500 slid 3.5%, or 50.3 points, to close at 1399.04. The Nasdaq Composite fell 3.9%, or 96.7 points, to close at 2407.87.