Last Updated Oct 9, 2014 4:28 PM EDT
NEW YORK - Investors beat a retreat Thursday, as stocks erased all of yesterday's big gains.
The Dow Jones industrial average tumbled 335 points, or nearly 2 percent, to close at 16,659, the fourth time this year the index has declined at least 300 points. The Standard & Poor's 500 index fell 41 points to 1,928 and the Nasdaq composite lost 90 points to end at 4,378.
The sharp pullback is leading some investors, including financier Carl Icahn, to predict a market correction, especially as the Federal Reserve moves to end a bond-purchase program that has helped keep interest rates low during the recovery.
But other market participants said that stronger U.S. economic growth in the second half of the year and in 2015 is likely to shore up financial markets.
"People think the market is overvalued," said John Canally, chief economics strategist with broker-dealer LPL Financial. "We happen not to think so. It's not cheap, but it's also not expensive by any means."
The bulk of Thursday's selling happened in energy stocks, particularly in oil and coal companies, as the price of oil continued a multi-week decline. The energy sector of the S&P 500 fell nearly 3.5 percent, far more than the rest of the market. Exxon Mobil and Chevron, the nation's two largest oil and gas companies, each fell 3 percent.
The price of oil is plunging as concerns mount about slowing global economic growth while global oil production remains high. Benchmark U.S. crude fell $1.60 to $85.69 a barrel on the New York Mercantile Exchange. Oil also dropped on Wednesday following news of lower global demand and high supplies. Oil is now 20 percent below its 2014 peak of $107.26 a barrel, reached in late June. Brent crude, an international benchmark used to price oil used by many U.S. refineries, was down $1.17 to $90.21 in London.
Triple-digit swings in the U.S. stock market have become common in recent days. Just this week, the Dow jumped 274 points Wednesday, which reversed a 272-point decline on Tuesday. Market watchers have been warning that the market was due for some more volatility after months of relative calm.
"There's a lot of cash on the side which wants to come back [into the market], but when you have big swings on alternative days like we are, folks are just not trusting the market," said Sal Arnuk, a partner at Themis Trading, in an e-mail.
Traders also say the volatility may slow down once corporate earnings season gets fully underway.
Aluminum company Alcoa reported its results Wednesday, which beat expectations, but the bulk of S&P 500 companies will not report for another week or so. "Everyone seems to be waiting for earnings season at this point," said Neil Massa, senior equity trader at John Hancock Asset Management.
Investors are also dealing with more disappointing economic news out of Europe. Germany's exports sank 5.8 percent in August; the biggest monthly drop in five years. The figure raises concerns that Europe's largest economy may fall into recession. The IMF cut its outlook for this year and next for the global economy, citing weakness in Japan, Latin America and particularly Europe.
Gap dropped $5.25, or 13 percent, to $36.65. The clothing chain's CEO Glenn Murphy announced he would step down in February. The news came as a surprise to investors, since Murphy is only 52 and was expected to continue in his role for several more years. Murphy was credited for helping Gap navigate through the Great Recession and restoring the company's appeal to younger customers.