US SHARE markets continued a two-day rout on Monday, with the Dow Jones suffering its worst daily percentage fall since 2011 and single biggest point drop in its 132-year history.
At the close, the Dow Jones Industrial Average was down 1175 points, or 4.6 per cent, after earlier plummeting nearly 1600 points. The broadbased S&P 500 index was down 113 points, or 4.1 per cent, and the tech-focused Nasdaq was down 273 points, or 3.8 per cent.
The drop in the Dow beats the previous record from September 2008, when the index lost 777 points following the rejection of the Lehman Brothers bailout by US Congress.
American stocks have now largely erased their gains since the start of the year, with the Dow down 0.8 per cent, the S&P down 0.9 per cent and the Nasdaq up 1 per cent. The global rout smashed the Australian share market, which plunged nearly 3 per cent in early trading on Tuesday, following a $30 billion loss on Monday.
"It is an actual bloodbath," Charles Schwab market analyst Ben Le Brun told AAP.
"Wall Street has had an appetite for stocks for years on end so it has just been going up in steps and now we are looking at nothing more than a pullback. So, of course, there is fallout here in Australia."
By 1:30pm AEST, just three companies in the ASX 200 were in the green - Northern Star Resources, Resolute Mining and Oz Minerals. Software company Wisetech Global was the worst performer, down more than 10 per cent.
AMP Capital chief economist Dr Shane Oliver said the correction was long overdue.
"I really think it was something that was due to happen," he said. "There was a combination of things - the triggers have been worries about rising inflation, a more aggressive US Federal Reserve and higher bond yields.
"And it's come at a time when the US market was vulnerable to a correction because it's been a long time since it's seen a decent pullback - through the course of last year there was no pullback greater than 3 per cent."
CMC Markets chief market analyst Ric Spooner said despite the heavy falls on the ASX, there could be a sharp rebound in coming days courtesy of bargain hunters. "Once it becomes volatile like this the chances are it will stay volatile," he said.
"That means we could see some relatively large moves in either direction. Personally I think we are getting into the valuation zones where bargain hunters will start to get interested in our market, particularly with reporting season coming up."
Mr Spooner said Wall Street could "happily fall" another 4 to 5 per cent just to get back to historical average levels, but that he didn't think Australian share valuations were as overstretched as the US.
"With the benefit of hindsight, stock markets have been overvalued based on most historical measures," he said. "Despite the fact that the moves are very large, I don't think this is a GFC [situation]."
All 30 blue-chip companies in the Dow index finished in the red on Monday, while just two companies out of the S&P 500 finished higher - travel firm TripAdvisor and household goods manufacturer Church & Dwight.
Investors have been focused only on the "good news" such as tax cuts, Dr Oliver said, while failing to allow for the US Fed raising interest rates.
"I think the real reason is the market got ahead of itself," he said. "The US market rose 20 per cent in 2016, 7.5 per cent in the first four weeks of this year, it just got overbought."
But while there could be more pain to come in the short term, Dr Oliver said it was unlikely to signal the start of a broader downturn. "Corrections less than 10 per cent are a dime a dozen. We see them all the time," he said.
"We're probably going to see more downside, probably going towards 10 per cent, but historically they don't go on to become bear markets unless a recession is on the way in the US, and there's no sign of that."
The latest sell-off was triggered by better-than-expected US employment figures last week, which showed a gain of 200,000 jobs in January. That was seen as raising the likelihood of an interest rate rise in March.
It came as bond yields rose to a four-year high on Friday. Rising bond yields make shares look "expensive" in comparison.
"The fundamentals have not changed. Investors have been looking for a catalyst to sell off, and rising interest rates [and] inflationary signs, along with concerns of the Washington memo, are in the spotlight."
US President Donald Trump - who has repeatedly taken credit for the surging stock market - was delivering a speech at a factory in Cincinnati touting his tax cuts during Monday's sell-off, the LA Times reported, where he did not address the plunge but boasted about the soaring economy.
White House spokeswoman Sarah Sanders meanwhile said Mr Trump was focused on the long-term health of the economy. "The president's focus is on our long-term economic fundamentals, which remain exceptionally strong," Ms Sanders told reporters.
She cited "strengthening US economic growth, historically low unemployment and increasing wages for American workers".
"The president's tax cuts and regulatory reforms will further enhance the US economy and continue to increase prosperity for the American people," she said.