The S&P 500 slipped 30.65 points, or 2.28 percent to end at 1,314.55.
The Nasdaq fell 66.11 points, or 2.33 percent to finish at 2,769.19.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, surged 18.45 percent, to end at 18.30.
The Dow and S&P have seen the biggest drops since August 11, 2010 and are now on pace for a fifth straight week of losses. The Nasdaq saw its worst first day of the month since October 2009. All 10 key S&P 500 sectors dropped, led by financials, materials and industrials.