NEW YORK (TheStreet) -- The Dow Jones Industrial Average has plummeted more than 300 points on Thursday, obliterating gains in the Fed-inspired rally a day earlier. Small-caps were leading losses in the broad-based selloff as concerns of another recession in the eurozone weighed on markets.

The Russell 2000 index of small caps plunged 2.39%, its lowest level in 13 months, with traders reluctant to enter what is typically viewed as a riskier investment. The major indices erased all gains achieved in Wednesday's rally.

The Dow, down 1.86%, suffered its seventh drop in the past nine sessions. Thursday marked the third straight session where the Dow has moved more than 200 points in any direction, a reflection of extreme market volatility at play. The Chicago Board Options Exchanges' Volatility Index spiked 27.33% to 19.24, its highest level since January.

The S&P 500 tanked 1.94%, its worst day since July 31, and the Nasdaq was down 1.85% with losses accelerating as the afternoon session wore on. 

Wall Street celebrated the year's biggest rally on Wednesday after the Federal Reserve indicated an interest rate hike could come later than expected. But stock markets are sinking Thursday because a delayed hike comes at a cost: the continued slowdown in global growth. 

"What is really spooking investors is the lack of apparent global growth that was assumed to be on track," said Jim Russell, senior equity strategy for U.S. Bank Wealth Management, in a phone call.

Wall Street went bananas for equities on Wednesday, with all major indices achieving higher than 1.5% increases, after the Fed pointed to European weakness as a potential headwind to the U.S. growth story, which could delay the need for an increase in interest rates.

"The Fed minutes really spoke to, for the first time, an awareness that global growth is slowing and is likely to have a slightly negative impact for the U.S. economy," said Russell. "That kind of statement suggests strongly the Fed will be more accommodative for a longer period of time into 2015."

European Central Bank President Mario Draghi highlighted a desperate need for reforms to revive the economies of the European Union on Thursday. Europe has a one-in-three chance of falling back into recession on deflation concerns, according to the International Monetary Fund's most recent global outlook report.

"Put simply, I cannot see any way out of the crisis unless we create more confidence in the future potential of our economies," he said in a speech at the Brookings Institution in Washington. "Given demographic trends, raising structural growth will have to take place primarily through productivity."

Watch the video below for a look at how U.S. markets are doing in midday trading Thursday:

European markets closed mostly in the red, save for Germany's DAX which gained 0.34%. German exports fell 5.8% in August, its biggest monthly drop in five years, after a 4.8% increase a month before. This was the third data point this week that painted a worrying picture of Europe's largest economy.

German Finance Minister Wolfgang Schaeuble countered that the country hasn't seen contraction, though growth has been stunted. "We don't have a recession in Germany. We have a weakening of growth," he said while attending the Bertelsmann Foundation in Washington on Thursday.

In corporate headlines, Gap (GPS) CEO Glenn Murphy announced he will step away from the company early next year. Shares of the retailer tumbled 12.4%, marking it as the worst-performer on the S&P 500 on Thursday.

Apple (AAPL) was in the headlines on Thursday after activist investor Carl Icahn pushed for further share buybacks in an open letter to CEO Tim Cook. Icahn, who owns $4 billion of Apple stock, argued shares are currently seeing "massive undervaluation," presenting a prime opportunity for increased repurchases.

Icahn Capital committed to holding onto shares should the company increase its buyback program. "We commit to this because we believe Apple remains dramatically undervalued. And we think you and the board agree," Icahn wrote to Cook.

Separately, the Cupertino, Calif.-based company confirmed an iPad event on Oct. 16 where it is expected to unveil the latest iPad Air model. Apple shares edged 0.31% higher. 

J.C. Penney (JCP) continued to fall after warning of softer sales than expected in September. Management tweaked comparable-store sales estimates to a low-single-digit increase from previous estimates of a mid-single-digit increase. Shares fell 7.2% and are down more than 16% over the past two days.

Advanced Micro Devices (AMD) was suffering similar managerial problems, falling 9.8% after CEO Rory Read stepped down. Lisa Su, the company's chief operating officer for the past four months, has been appointed to the position.

Auxilium Pharmaceuticals (AUXL) gained 10.1% after accepting an acquisition offer from Endo International (ENDP) for $1.67 billion.

Kindred Healthcare (KND) surged 5.6% after announcing it will acquire Gentiva (GTIV)  for $1.8 billion in cash and stock. Gentiva shares were up 16.8%.

-- Written by Keris Alison Lahiff in New York.