The Dow Jones Industrial Average lost 208 points, or 0.9 percent, to 23,893.
Substantial weakness was also visible among interest rate-sensitive commercial real estate and utilities stocks, with the Dow Jones Real Estate Index and the Dow Jones Utilities Average plunging by 3.8 percent and 4.3 percent, respectively. The drops come as investors worry about continuing trade tensions, a court ruling declaring Obamacare unconstitutional, the potential partial government shutdown, the unresolved Brexit issue, and a rising backlash against big tech companies.
While the equities market may have priced in the final hike of the year, investors will be looking for clues to the Fed's next move on monetary policies and its plan on interest rate hikes next year.
Cryptocurrency, on the other hand, made a bit of a recovery, with bitcoin up more than 8% to about $3,539.33 and Ethereum up more than 10% to $95.09 in the past 24 hours, according to CoinMarketCap data.
Steep drops in equity markets over the last two months have sapped investor confidence, spurring fund managers to predict global growth to weaken over the next 12 months, the worst outlook in a decade, Bank of America Merrill Lynch's December investor survey showed. Energy stocks plummeted along with crude oil, which reached its lowest price since August 2017.More news: Nigel Farage Reacts To Jeremy Corbyn's Motion Of No Confidence In PM
The S&P 500 fell 54 points, or 2.1 percent, to 2,545. Health care companies also fell sharply.
"The market's overriding fear is that the Fed will press ahead with plans to raise interest rates, which could be too much for the United States economy to handle", Jasper Lawler of London Capital Group said in an email on Tuesday. The Cboe Volatility Index, the most widely followed gauge of expected near-term gyrations for the S&P 500, finished up 1.06 points at 25.58, its highest close in 10 months. Investors are hoping the Fed will say the increases are going to slow down in 2019 in light of recent signs that economic growth is slowing.
"I'm pretty sure this is a bear market", Gundlach said on CNBC's "Halftime Report".
Oil prices dropped $3.66 to $46.22 USA a barrel. "With the global economy facing lower growth in 2019, including the USA, inflation in check and US stocks in correction territory, it may not be the best time to be raising rates". Treasury Secretary Steven Mnuchin said the U.S. and China are planning to hold meetings next month to seek a trade truce. The Nikkei 225 in Japan lost 1.8 percent, the Hang Seng in Hong Kong dropped 1 percent and South Korea's Kospi slipped 0.4 percent. Brent crude, used to price worldwide oils, sank 5.6 percent to $56.26 a barrel in London. Exxon Mobil gave up 2.8 percent.