Wall Street has slumped to close well down as investors keen for a more modest interest rate path were disappointed by Federal Reserve Chief Jerome Powell signalling the central bank will keep hiking rates to tame inflation.
The Nasdaq led declines among the three US benchmarks, weighed by high-growth technology stocks which tumbled after rallying the previous day in anticipation of Powell's scheduled speech to the Jackson Hole central banking conference in Wyoming.
The US economy will need tight monetary policy "for some time" before inflation is under control, Powell said at the event.
That means slower growth, a weaker job market and "some pain" for households and businesses, he added.
Investors knew further rate rises were coming and they have been divided between whether a 75-basis-point and a 50-basis-point hike by the Fed was coming next month.
However, recent data highlighting continued strength in the labour market, to offset two consecutive quarters of negative economic growth, had led to some speculating a more tempered pace of hikes could be forthcoming.
"The pushback is coming from the idea that it's not about the pace of hikes going forward and how they tighten financial conditions, it's about the duration of remaining at that restrictive policy stance," said Garrett Melson, portfolio strategist at Natixis Investment Managers.
"That's the nuance they are trying to push forward and Powell was, maybe, a bit more explicit in that today. But if you've listened to other Fed speakers in the last couple of weeks, it's the same message."
All the 11 major S&P 500 sectors were lower, with the information technology, communication services and consumer discretionary indexes among the heaviest declines.
The S&P 500 lost 140.83 points, or 3.35 per cent, to end at 4,058.29 points, while the Nasdaq Composite lost 496.39 points, or 3.93 per cent, to 12,142.88 and the Dow Jones Industrial Average fell 1,003.74 points, or 3.01 per cent, to 32,288.04.
Weighing on megacap growth and technology stocks, the US two-year Treasury yields briefly popped to their highest levels since October 2007 before stabilising near two-month highs.
High-growth and technology stocks dropped.
Having led gainers in the previous session, Nvidia Corp and Amazon.com Inc fell.
Meanwhile, Google-parent Alphabet Inc, Meta Platforms Inc and Block Inc also dipped.
US stock indexes have retreated since the turn of the year as investors priced in the expectation of aggressive interest rate hikes and a slowing economy.
But they have recovered strongly since June, with the S&P 500 recouping nearly half its losses for the year on stronger than expected quarterly earnings and hopes decades-high inflation has peaked.
Data earlier showed consumer spending barely rose in July but inflation eased considerably, which could give the Fed room to trim its aggressive interest rate increases.
Dell Technologies Inc fell as it joined rivals in predicting a slowdown as inflation and the darkening economic outlook prompt consumers and businesses to tighten their purse strings.
Affirm Holdings Inc tumbled after the buy-now-pay-later lender forecast full-year revenue below Wall Street estimates, underscoring the broader downturn in the fortunes of the once high-flying fintech sector.