The Dow dropped 464 points, or 2%, on Thursday. The index closed below 23,000 for the first time since October 2017. The Nasdaq lost 1.6% and only narrowly avoided closing in its first bear market since the Great Recession. The S&P 500 declined 1.6%.

And US oil prices are in free fall, ending below $46 a barrel for the first time since August 2017.

The latest wave of selling shows how worried investors have become about the eventual demise of the economic expansion. Those jitters were exacerbated by concerns that the Federal Reserve is making a mistake by continuing to raise interest rates.

"Equity markets are quickly approaching the capitulation phase after having broken below critical support," Sam Stovall, chief investment strategist at CFRA Research, told CNN Business.

House Speaker Paul Ryan said President Donald Trump won't sign the spending bill needed to prevent a government shutdown. Although a short-term shutdown would not have a large impact on the national economy, it would serve as a reminder of government dysfunction. Market sentiment wasn't helped by a surprise deepening in the budget fight in Washington either.House Speaker Paul Ryan said President Donald Trump won't sign the spending bill needed to prevent a government shutdown. Although a short-term shutdown would not have a large impact on the national economy, it would serve as a reminder of government dysfunction.

"In a market that is so jittery, that was just one more thing that added to it," said TD Ameritrade chief market strategist JJ Kinahan.

At Thursday's lows, the Nasdaq was on track to close 20% below the closing high set on August 29. It's premature to say the Nasdaq is officially in a bear market: Market analysts tend to calculate bull and bear markets using closing numbers. And the S&P 500, the benchmark for US stocks, would have to tumble another 5% before hitting bear territory.

If the Nasdaq does slide into a bear market, it would join a growing list of downturns in risky assets. The trade war helped knock China's stock market into a bear market over the summer.

Worries about a supply glut knocked oil into a bear market last month. Crude plunged 4.8% on Thursday to $45.88 a barrel. Oil has now lost 40% of its value in barely two months.

More recently, two economically-sensitive areas have succumbed to the bear: the Russell 2000 small-cap index and the Dow Transportation Index.

Extreme fear

Signs of fear are flashing in financial markets. The VIX ( VIX ) volatility index climbed on Thursday to the highest level since February when the Dow suffered two 1,000-point plunges in one week. The CNN Business Fear & Greed Index of market sentiment dipped deeper into "extreme fear" territory.

And investors fled risky stocks. Tesla ( TSLA ) lost 5%, JCPenney ( JCP ) tumbled 6% and Twitter ( TWTR ) plunged 11%.

"It's almost the complete opposite of 2017 where any news (good or bad) was met with buying," Paul Hickey, co-founder of Bespoke Investment Group, wrote in an email. "Today, any news (bad or good) has been met with selling."

Investors hoping to get rescued by the Fed were left disappointed by the central bank's statement and Jerome Powell's press conference on Wednesday. The Fed dialed back its 2019 rate hike projections, but struck a more optimistic tone than signaled by the market. And Powell suggested the Fed will keep shrinking its balance sheet despite the market mayhem.

Economic concerns were amplified by a surprise decline in the Philly Fed manufacturing index, which tumbled on Thursday to the lowest level since August 2016.

Trade tensions between the United States and China were also on display on Thursday when the Justice Department charged two Chinese nationals in a global hacking scheme to steal business secrets. The US action underscores the fragile nature of the trade ceasefire between Washington and Beijing.

Overreaction?

Some market veterans believe investors are overreacting, especially given the strength of the American economy.

"The market's behaving like a two-year-old," said David Kelly, chief global strategist at JPMorgan Funds. "The Federal Reserve is doing its job -- and it's doing it patiently and cautiously."

Kelly said the recent market slide could present an entry point, especially for investors who previously felt stocks were too expensive. The S&P 500 is now trading at just 16 times its trailing earnings, the lowest price-to-earnings ratio in several years, according to Bespoke.

"You would need a recession to justify a US bear market. And I don't see what we're anywhere close to a recession," he said. "If you're a long-term investors you now have the opportunity to buy cheap."