The Dow Jones Industrial Average tumbled 741.46 points, or 2.42 percent, to 29,927.07, marking the first time the index has traded below the 30,000 threshold since January 2021. The S&P 500 fell 123.22 points, or 3.25 percent, to 3,666.77. The Nasdaq Composite Index shed 453.05 points, or 4.08 percent, to 10,646.10.
All the 11 primary S&P 500 sectors ended in red, with energy and consumer discretionary down 5.58 percent and 4.76 percent, respectively, leading the losses.
The heavy selling came as investors grew concerned that the Federal Reserve's aggressive policy tightening could push the economy into a recession.
The Fed on Wednesday raised its benchmark interest rate by 75 basis points, the sharpest rate hike since 1994, bringing the target range for the federal funds rate to 1.5 to 1.75 percent.
The move could be followed by another hike of that magnitude in July, or a half-point increase, Fed Chair Jerome Powell said Wednesday.
Meanwhile, the Fed's updated economic projections pointed to a likely slowdown in the economy.
The Fed's rapid response with a 75 bps hike was a sign that it intends to win its inflation-fighting credibility back "at a higher risk of recession," analysts at UBS said in a note on Thursday.
The action "will have a negative impact on growth and on valuations," they added.
On the economic front, the U.S. Commerce Department said Thursday that construction started on new U.S. homes fell 14.4 percent in May. Economists polled by Dow Jones had estimated a 2.6 percent decline.
U.S. initial jobless claims, a rough way to measure layoffs, decreased by 3,000 to 229,000 for the week ending June 11, the Department of Labor reported. The reading remained close to a five-month high and was higher than the 220,000 print expected by economists polled by The Wall Street Journal.
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