Editors note: A prior version of this report incorrectly calculated the Dow’s decline from all-time highs. The report has been corrected.

The S&P 500 and the Dow extended their decline to close in correction territory Thursday after stocks went into a free fall late in the session on concerns about mounting volatility and worries about inflation and rising bond yields.

Read:Volatility aftershocks? Here’s what stock-market investors need to know

While inflation concerns and rising rates are often described as the catalyst for the selloff, analysts have also noted that equities were due for a pullback after scoring big gains in January and throughout 2017. A correction is usually defined as a pullback from a recent peak of at least 10%.

What are the main benchmarks doing?

The Dow Jones Industrial Average DJIA, -0.87% slumped 1,032.89 points, or 4.2%, to close at 23,860.46, its second worst point decline in history, leaving it 10.4% off its record close from Jan. 26. The S&P 500 index SPX, -1.11% skidded 100.66 points, or 3.8%, to 2,581, weighed by financial and technology stocks. It’s down 10.2% from its all-time high.

The Nasdaq Composite Index COMP, -1.07% sank 274.82 points, or 3.9%, to end at 6,777.16.

The Cboe Volatility Index VIX, -2.38% jumped 24% to 34.48.

What are strategists saying?

William Delwiche, an investment strategist at Robert W. Baird & Co., predicted volatility to continue plaguing the market given the upward pressure on bond yields and that the stock market is not likely to stabilize until breadth improves and investors’ optimism dissipates.

”It is not uncommon for markets to be topsy-turvy after a recent severe selloff. Traders are still testing the water and they are half expecting another sudden selloff,” said David Madden, a market analyst at CMC Markets, in a note. “Investors love to pick up cheap stocks, but when they fear another sharp decline is on the horizon their default position can be to look to so-called safe haven assets like gold and bonds.”

What’s driving markets?

Political worries might pressure the market somewhat, as a partial shutdown of the federal government lies ahead if lawmakers don’t agree on spending measures by midnight.

Senate Majority Leader Mitch McConnell and Senate Minority Leader Chuck Schumer unveiled an agreement Wednesday. The deal faces a bumpy path in the House, where Republicans will need Democrats’ help to pass it, since conservatives will likely object to a big increase in government spending.

What’s on the economic docket?

Initial U.S. jobless claims fell by 9,000 to 221,000 in the seven days ended Feb 3. Economists surveyed by MarketWatch forecast a 235,000 reading.

Check out:MarketWatch’s Economic Calendar

New York Federal Reserve Bank President William Dudley said the drop in the stock market so far won’t endanger the economic expansion. “So far, I’d say this is small potatoes,” he said, in a Bloomberg Television interview.

The correction in financial markets is healthy and is unlikely to hurt financial conditions or the broader U.S. economy, Dallas Federal Reserve President Robert Kaplan said early Thursday at an event in Germany.

Minneapolis Fed President Neel Kashkari said the Federal Reserve is “a long way away” from having to raise interest rates due to higher inflation on the back of higher labor costs. Speaking at a moderated discussion in Pierre, South Dakota, Kashkari said the January jobs report, which was blamed for the stock market selloff, was actually only “mixed” in terms of wage growth.

Kansas City Fed President Esther George is due to give a speech on the economic outlook to a business group in Wichita, Kan., at 9 p.m. Eastern.

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Which stocks are making big moves?

Shares in Tesla Inc. TSLA, +4.42% fell 8.6%. The maker of electric cars late Wednesday posted a narrower-than-expected adjusted loss for the fourth quarter.

See:Elon Musk predicts profit at Tesla in 2018, and much more

21st Century Fox Inc. FOXA, -2.34% shares slid 4.2% after the media company reported better-than-anticipated earnings late Wednesday.

Shares of Twitter Inc. TWTR, +2.03% soared 12% after the microblogging company delivered better-than-expected financial results and reported its first-ever quarter of profitability.

Rice Krispies producer Kellogg Co. K, -0.92% reported fourth-quarter net income of $428.0 million, or $1.23 per share, compared with a loss of$53.0 million, or 15 cents per share, for the same period last year. Its shares were up 2.8%.

Yum Brands Inc. YUM, -1.70% and Grubhub Inc. GRUB, +0.61% said Thursday they have entered a partnership in the U.S. aimed at driving online sales and delivery to Yum’s restaurants, including KFC and Taco Bell. Meanwhile, Grubhub’s stock jumped 27% after the company reported better-than-expected revenue. Shares of Yum were down 4.8%.

Yum China Holdings Inc. YUMC, -1.36% shares were down 7.5% after the company reported a fourth-quarter loss related to a one-time charge related to the U.S. tax cuts.

Teva Pharmaceutical Industries Ltd. shares TEVA, +2.04% plummeted by 11% after the company reported fourth-quarter profit and revenue beats but provided 2018 guidance that fell well short of expectations.

What are other assets doing?

European stocks SXXP, -0.66% fell, with U.K. stocks UKX, -0.70% lower after the Bank of England held interest rates unchanged but said interest rates may go up sooner than previously expected. In its quarterly inflation report, the U.K. central bank lifted its 2018 economic growth forecast to 1.8% from 1.6%, saying U.K. trade is benefiting from a strong global upswing.

In contrast, Asian markets mostly finished with gains.

The yield on 10-year Treasury notes TMUBMUSD10Y, 0.701% was at 2.83% and traded above 2.80% all session.

Gold futures US:GCG8 settled higher, snapping a four-day losing streak. Crude-oil futures US:CLH8 sank, while the ICE U.S. Dollar Index DXY, +0.03% was mostly flat.

—Victor Reklaitis contributed to this article

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