The Dow Jones Industrial Average tanked 299.43 points, or 3.4 percent, to 8,487.31. It was the third-biggest point loss ever and the key gauge's worst percentage loss since the Oct. 27, 1997, freefall of 7.2 percent.
Since peaking at 9,367.84 on July 20, the Dow has stumbled 880.53 points, or 9.4 percent.
Widely-followed market analyst Ralph Acampora of Prudential Securities told clients he looks for a correction of 15 percent to 20 percent in blue-chip averages. Acampora had been bullish since 1994, with stocks making good on a series of forecasts he made for higher prices on the Dow.
Tuesday's volume was the second-heaviest in New York Stock Exchange history, exceeded only by that of Oct. 28, 1997.
The number of stocks on the New York Stock Exchange making new 52-week lows reached 563, the most since the 637 of April 4, 1994, and a sign of the fragile state of the average stock. Just 17 Big Board stocks made new highs.
In another sign of the market's anemic breadth, New York Stock Exchange losers overwhelmed winners by an astounding 5 to 1. It was the worst ratio since April 27.
The Russell 2000 Index, a benchmark for smaller stocks, lost less than blue-chip averages. But at the Russell's lowpoint in Tuesday's session, it had lost 18.5 percent from its intraday high of April 22, exceeding the big corrections suffered in 1992 and 1996.
"This is the unhealthiest market we've had since 1994," said Tim Hayes, senior equity strategist at Ned Davis Research. "Our indicators show that market breadth and momentum have been the worst since 1994.
"The large-capitalization averages had been the one thing holding the market up," he said. "When you start to see these breaking down, that would confirm that we're in a downtrend."
"I think the chances are probably greater than 50 percent that we are going to have what will be constituted as a bear market," said Ricky Harrington, senior vice president and technical analyst at Interstate Johnson Lane Inc. "By definition, this means that the averages go down 20 percent.
"The one thing that is different technically is that we have a tremendous divergence between the performance of secondary stocks vs. the big-cap, blue-chip stocks," Harrington pointed out. "But also the market is much more highly valued now.
"We've had a long, almost unabated bull market and a correction of some magnitude is certainly in order. That, in itself, is a decent reason for expecting a normal correction here."
Fundamentally, corporate earnings growth, or the lack thereof, is at the heart of the two-week decline in blue-chip averages.
According to earnings compiler IBES, about 84 percent of America's 500 largest corporations have thus far weighed in with second-uarter results. Earnings have come in a paltry 1.7% higher than those of the second quarter of 1997.
As for the future, IBES reports that Wall Street equity analysts look for earnings at America's largest companies to grow 5.9 percent in the third quarter and 11.7 percent for the fourth quarter.
But analysts have continually ratcheted these figures down since the start of the year. Then, they stood at 15.3 percent and 14.8 percent, respectively.
In Tuesday's market highlights:
- The Standard & Poor's 500 Index fell 3.6 percent.
- On the Big Board floor, turnover surged 32 percent to 825 million shares.
- The Nasdaq Composite fell 3.5 percent. Declining issues smashed advancers by 3.7 to 1 in the Nasdaq Stock Market. Volume totaled 908 million shares.
- In the bond market, the 30-year Treasury rose 17/32, to yield 5.627 percent.