Investors sold riskier assets and rushed to traditionally safer bets such as gold and U.S. Treasuries after countries including Iran, Italy and South Korea reported a rise in virus cases over the weekend even as China eased curbs with no new cases reported in Beijing and other cities.
The benchmark S&P 500, which represents over 44% of the market capitalization of all global equities, lost $927 billion of its value on Monday alone and $1.33 trillion since its closing high on Wednesday last week, according to S&P Dow Jones Indices senior analyst Howard Silverblatt.
The S&P and the blue-chip Dow turned negative for the year to date and the Dow dropped more than 1,000 points on the day for only the third time in its history.
The technology-heavy Nasdaq fell 3.71%, the biggest daily percentage drop of the three major averages.
"We're not likely to make any progress higher until we have evidence the spread of the coronavirus is decelerating," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
The Dow Jones Industrial Average fell 1,031.61 points, or 3.56%, to 27,960.8, the S&P 500 lost 111.86 points, or 3.35%, to 3,225.89 and the Nasdaq Composite dropped 355.31 points, or 3.71%, to 9,221.28.
All of the 11 major S&P sectors closed in the red, led by the energy sector's 4.7% decline and followed by a 4.2% drop in technology stocks.
Apple Inc slid 4.8% as data showed sales of smartphones in China tumbled by more than a third in January.
China-exposed chipmakers fell, with the Philadelphia SE Semiconductor index dropping 4.8%, while concerns about growing travel curbs dragged the NYSE Arca Airline Index down 6%.
Of the S&P's sectors, the defensive utilities, real estate and consumer staples indexes fell the least on the day.
Treasury yields fell to their lowest levels since 2016 as investors sought safety in government bonds, while the yield curve inversion between the 3-month and 10-year U.S. Treasuries deepened in what is often viewed as a recession predictor.
Adding to worries, Goldman Sachs slashed its U.S. growth forecast on Sunday and predicted a more severe impact from the epidemic.
The CBOE Volatility Index, a gauge of investor anxiety, registered its biggest one-day jump since February 2018 and ended the day at 25.03, its highest closing level since January 2019.
"There was this underlying concern that was out there, and obviously over the weekend, it just escalated," said Stacey Gilbert, portfolio manager for derivatives at Glenmede Investment Management in Philadelphia.
After Monday's nosedive, the S&P closed almost 5% below its record closing high, achieved last week, while the Nasdaq ended 6% off its peak close and the Dow ended the day 5.4% below its record close.
The S&P 500 fell below its 50-day moving average and the Dow slipped below its 100-day moving average, all closely watched technical indicators.
Health insurers such as UnitedHealth Group Inc and Cigna Corp dropped almost 8% after Senator Bernie Sanders, who backs the elimination of private health insurance, strengthened his position for the Democratic presidential nomination with a victory in the Nevada caucuses.
Janney Montgomery Scott's Luschini said that while the coronavirus was "by far and away the primary influence" for the market's decline on Monday, investors, he said, were "also beginning to handicap the odds of Sanders being the Democratic nominee."
In a rare bright spot, Gilead Sciences Inc, whose antiviral remdesivir has shown promise in monkeys infected by a related coronavirus, rose 4.6%.
Declining issues outnumbered advancing ones on the NYSE by a 6.74-to-1 ratio; on Nasdaq, a 6.02-to-1 ratio favored decliners.
The S&P 500 posted seven new 52-week highs and 23 new lows; the Nasdaq Composite recorded 21 new highs and 154 new lows.
On U.S. exchanges, 10.59 billion shares changed hands, compared with the 7.79 billion average for the last 20 sessions.