North American stock markets plunged in volatile trading on Monday after the Dow Jones index fell almost 1,200 points, following its worst weekly decline since 2016 on Friday.

Monday was the first time the Dow fell below 25,000 points since Jan. 4. The index also saw its largest daily points drop in its history.

The benchmark Dow Jones Industrial Average lost 1,175 points and closed down 4.6 per cent to 24,345.68 points. It was down more than 1,500 points at one point in the afternoon.

On Friday, it lost 666 points — marking the biggest daily decline since during the global financial crisis in December 2008.

Meanwhile, the S&P 500 lost 4.1 per cent to 2,648.96 — its biggest daily percentage drop since August 2011. The tech-heavy Nasdaq Composite finished down 3.8 per cent to 6,967.53. The Dow Jones & S&P 500 have now erased their gains for this year.

John Zechner, chairman of investment firm J. Zechner Associates, said there was definitely some panic selling in the markets, which was to be expected, because markets don't go straight up forever.

"Markets take the escalator up and the elevator down and I think you're seeing a little of that today," he said.

"Money's been flowing at such a rate and people have seen this market as almost an infallible in the past year and everybody is saying at some point you're going to have a rollover."

The financial, energy and industrial sectors were among the biggest losers in the U.S.

Derek Holt of Scotiabank Economics said investors' "fear" in the market was the result of several factors.

"First, strained valuations, second, central bank concerns in a week that is full of global central bank decisions; plus a U.S. shutdown risk by Thursday as the debt ceiling suspension draws to a close in a little over a month," he said in a note.

Bond yields

Rising bond yields also continued to weigh on shares as investors worried that signs of rising inflation could make the U.S. Federal Reserve raise interest rates faster than anticipated.

As interest rates rise, the value of existing bonds falls and borrowing to invest becomes more expensive.

The yield on the 10-year U.S. treasury note surged to 2.885 per cent overnight, a four-year high, but fell back to 2.841 per cent in the morning.

Robert Kavcic of BMO Capital Markets said in his note Monday that despite the sell-off in equities, the rise in treasury yields has not relented.

"Surging bond yields and the realization that monetary tightening is now a real and more significant factor," he said.

"This just serves to reinforce our expectation that a March rate hike is coming, and that the three-per-year pace that we have in our forecast right now is probably the starting point."

Canadian shares

The Canadian market fell the most in 17 months, closing down at the lowest level since mid-September.

In Toronto, the S&P/TSX Composite ended down 1.7 per cent to 15,334.81 points — falling for the sixth consecutive day.

It had also lost four per cent last week, marking its worst weekly decline since January 2016.

Financials and energy shares weighed on the index as benchmark U.S. crude fell $1.30 to $64.15 US a barrel in New York.

Shares of Toronto-Dominion Bank and Bank of Montreal were both down nearly three per cent.

On the other end, healthcare and the materials sectors were up on Monday after seeing losses for much of last week.

Shares of Aurora Cannabis were up nearly nine per cent after announcing that it would buy 20 per cent stake in an Alberta liquor store chain.

Weaker loonie

The Canadian dollar traded at 80.11 US cents, down from Friday's average price of 80.78 US cents.



Despite the loonie trading lower in a "risk off" market, Bipan Rai of CIBC Capital Markets said it does remain less sensitive than most other currencies to the global equities sell-off.

"Global central banks continue to diversify into the Canadian dollar. As of the third quarter of 2017, the amount of Canadian dollar reserves owned by central banks had grown by 85 per cent since the beginning of 2014," he said.

"Currently, we estimate that central banks own around 30 per cent of the domestic sovereign market."

Rest of the world

The majority of Asia's major markets closed down on Monday as Wall Street's sell-off on Friday raised concerns about an overdue correction in equities.

The region's biggest market, Japan's benchmark Nikkei 225 tumbled 2.6 per cent, while Hong Kong's Hang Seng index lost 1.1 per cent.



The lone bright spot was Mainland China's Shanghai Composite, which reversed losses to close up 0.7 per cent.

In Europe, the benchmark Stoxx 600 finished lower by 1.6 per cent — marking its lowest level since November. It's the sixth consecutive day of losses for the index.

That is the biggest decline for the index since the United Kingdom voted to leave the European Union in June 2016.

German coalition talks heightened concerns of political instability in the region after the country's political parties struggled to form a government.