Overnight, the Dow Jones Industrial Average crashed by 1.9%, while the broader S&P 500 Index lost 2%.
It's the biggest fall in six months, driven by disappointing earnings and concern over credit markets.
As Timothy Ghriskey chief investment officer at New York-based Solaris Asset Management aptly told Bloomberg, "Selling breeds selling."
Disappointing earnings from oil giant Exxon Mobil Corp, Samsung, Micron Technology, Adidas AG and news that Argentina had defaulted on its debt, combined with Portugese lender Banco Espirito Santo SA being forced to raise capital after a US$4.8 billion first-half loss, all contributed to the falls.
The US S&P 500 index hasn't dropped more than 10% since 2011 according to Bloomberg. Trading on 17.6 times reported earnings, the index is close to its highest level since 2010.
SPI futures were down 50 points, and the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has begun the day down 1.2%.
The biggest losers today so far amongst the Top 20 stocks are Westfield Corp (ASX: WFD), Rio Tinto Limited (ASX: RIO), CSL Limited (ASX: CSL) and AMP Limited (ASX: AMP). If the market does pull back 10% or more from here, the big four banks will be amongst those hardest hit. For some time now we've been calling them expensive, trading at lofty valuations both compared to their long term averages and their offshore counterparts.
We've written a few articles recently on how you can prepare your portfolio for a market downturn, including here and here. I just wish I'd followed my own advice!
It pays to remember that market falls are a normal part of the market. Don't panic and sell out now if you are investing for the long-term. And as I wrote in the second of the articles mentioned above, now more than ever is the time to focus on dividend paying companies. And if you want the Motley Fool's best dividend idea for 2014-15, you 'd be crazy not to read the following report.
