Stampede to the Exits

Other notable losers included stocks with exposure to China (perceived or actual), such as Goldman Sachs (GS Quote), Qualcomm (QCOM Quote) and CDC (CDC Quote), as well as high-end retailer Nordstrom's (JWN Quote), which issued disappointing results and guidance.

The Treasury bond market rallied Tuesday in part on a flight-to-quality trade. Traders also are embracing weak economic data, like Tuesday's durable goods orders, to price in more rate cuts and a weak economy. The yield on the 10-year Treasury bond fell to 4.51% from 4.63% Monday.

Likewise, the fed funds futures market increased odds of a fed funds-rate cut to 24% at the May 9 Federal Open Market Committee Meeting, up from 4% Monday, according to Miller Tabak. The market puts odds of a cut in June at 56%, up from 20% Monday and 2% two weeks ago.

Tail Wags the Dog

Overseas market selloffs generate fear and selling in U.S. markets, so Tuesday could be just the harbinger of more bad days to come. Many of the Shanghai Composite's stocks hit 10% decline-limits in last night's session, so those stocks could well "gap down" at the open in China, which occurs at 8 p.m. EST. New Zealand's stock market is already open and recently down 2.8%. Damage in global markets wasn't limited to the Pacific Rim, either. Brazil's Bovespa slid 6.6%, while London's FTSE 100 fell 2.3%.