"I think this (selling) is ahead of the long weekend," said John Canally, LPL Financial economist and market strategist. Currencies, oil and U.S. stock, bond and Treasury futures trade on Monday — the Martin Luther King holiday — but the stock markets are closed. "China releases a bunch of data Monday night, and I think that's part of it. Oil is a catalyst. But the only thing new this morning is oil."

In the worst sell-off of the correction so far, the Dow fell more than 390 points Friday to 15,988, below 16,000 for the first time since October. The , off nearly 2.3 percent, is now down 8.1 percent since the start of the new year. The S&P closed at 1876, but fell below last year's low of 1,867.

Stocks cratered and bonds were bid higher in a risk-off selling spree amid fears that oil's decline is signaling a slowdown that will end in a bear market and recession.

Emerging markets skidded, and many commodities, like copper and platinum, were slammed. The dollar was weaker against the euro, but emerging currencies fell hard against it. The Mexican peso, for example, was off 2.3 percent.

"The S&P may go down and break 1,800," said Jim Paulsen, chief investment strategist at Wells Capital Management. "The whole world is scared we're headed for a recession and a bear market. What's going on is people are finally fearful and valuations are finally getting closer to 16 times earnings."

A bear market is a 20 percent decline from the highs. For the S&P, that means 1,707.78. The Nasdaq is now 14.6 percent off its highs and it would be in bear market territory if it hit 4,185. The bear level on the Dow would be 14,681.

Read MoreHow to tell bull from bear market correction



The question is whether the slow-growing economy really is headed to recession. "That's the key ingredient. I don't think there's a bear market, though it could get close, but I just can't get myself to recession. I just don't see it. I don't see the likelihood," Paulsen said.



Like Paulsen, many strategists say they do not expect the U.S. to enter recession this year, and some have been reassuring investors that the sell-off is much like the one in August, sparked by weakness in China.



BlackRock CEO Larry Fink, however, said Friday that stocks could fall another 10 percent.

"We're in the midst of a real market decline, bordering on bear market," he said on CNBC's "Squawk Box." "But the speed at which this is happening is a reassessment of the risk, reassessment of where we're going." Fink said when the market finally tests the low, it will be a buying opportunity but oil could fall to $25 first.



Read MorePrepare for stocks to fall another 10 percent: Fink



Crude oil has been caught in the middle, identified as the culprit behind market mayhem but also bearing the brunt of growth fears. Its sharp decline has been far more dramatic than most expected, and crude futures now look to be headed toward the low $20s per barrel, once viewed as an extreme.

West Texas Intermediate crude futures fell more than 5 percent to settle at $29.42 per barrel, its first close under $30 since 2003. It fell both on China weakness and fears of new supply from Iran. China loan data was released overnight, but the market is poised for negative news on China GDP, retail sales and industrial production, expected Monday night.

Canally said the China story will be ongoing, and Monday's data may not help markets at all. "I think if you get people waiting around to get an all clear from China, they're going to be waiting for a while. It's going to be years before they can make this transition. What people are waiting for from China is a ripping of the Band-Aid," he said.

Fears that China will spill into the global economy also drove investors to safe assets. The 10-year Treasury yield dipped below the key 2 percent level briefly on Friday but it was at 2.03 percent in late trading.

"I don't really fault anyone for putting that trade on because now there's no warm-and-fuzzy feelings anywhere in the world. A lot of the pessimism is overdone at this point, especially with regard to the Fed," said Tom Simons, money market economist at Jefferies, noting market talk that the Fed is less likely to raise rates now.

Read More 'Now you know': Why Fed feared a quarter-point hike



Markets are now pricing in a low chance for a rate hike in March, just recently viewed as the most likely time for the second rate hike after December's increase, the first in nearly a decade.

Simons said the sentiment is that "the Fed is never going to hike. They're going to ease again! The market pricing in not even a full rate hike in December is too alarmist. There's no good evidence that things are this bad."

Some U.S. data have been weaker than expected, and is now showing signs of a weaker consumer, as well as a manufacturing slump. Retail sales Friday were down 0.1 percent for the month of December, an important time for consumption. Industrial production was also weaker in December, down 0.4 percent, reflecting weakness in utilities, mining and motor vehicle production. Capacity utilization fell to its lowest level since mid-2013.



"There's a contingency of people out there that keep blaming China for all of our issues when the U.S. data is becoming our issue," said Peter Boockvar, chief market analyst at Lindsey Group.

Boockvar said the Fed will have to change its forecast for four rate hikes this year. "They're driving a car looking backward and hoping they don't get in an accident. They're looking at the labor market and that's a lagging indicator. Job growth will slow way after the slowdown in the economy."

Jim Caron, fixed income portfolio manager at Morgan Stanley Investment Management, said he does not expect a recession this year but his expectations are now for slower growth and fewer Fed rate hikes.

"It does imply the Fed is going to do less rate hikes," he said. "If we look at financial conditions, we look at the fact [that] credit spreads are widening, equities are falling. These are two big headlines that could turn into less consumption, less growth. This tightening of financial conditions is certainly a headwind for the Fed to do less." He was expecting two to three hikes this year and now sees just two.

Nuveen Asset Management strategist Bob Doll told CNBC on Friday he still does not see a bear market for stocks, unless oil keeps plummeting.



"I do not think we'll enter bear market territory, assuming that's defined as 20 percent (decline), but needless to say the only way we can avoid that is if the price of oil stops going down and the dollar stops going up, because those two things were the cause of the decline in earnings expectations all last year," he said.

The VIX, the CBOE's volatility index, jumped sharply, reflecting market fear. It was up more than 12 percent, to 26.94.

Strategist Larry McDonald of Societe Generale pointed out that the two-month VIX Future was trading at extremely rich levels relative to the eighth-month. "Historically, when we reach these levels, the S&P rallies substantially," he wrote.

"In moments of extreme panic, investors "pay up" for front-month protection. As you can see below, the amount they're paying today is at an extreme level, telling us it's time to buy fear," he said.

Paulsen said he would buy if the market falls enough. "If the market gets below 1,800, I'm going to start looking at that as a decent point to start accumulating," he said.