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(Bloomberg) -- The selloff in stocks intensified and bond yields tumbled as a weak jobs report fueled worries that the Federal Reserve’s decision to hold rates at a two-decade high is risking a deeper economic slowdown.

Those fears roiled trading around the globe, spurring a massive surge in volatility and a flight away from the riskier corners of the market. The S&P 500 saw its worst reaction to jobs data in almost two years. A plunge in key technology companies sent the Nasdaq 100 down over 10% from its peak, passing the threshold that meets the definition of a correction. A rally in Treasuries extended into a seventh straight day, with traders projecting the Fed will cut rates by more than a full percentage point in 2024.

The rout in equities follows a torrid advance partly driven by bets on a “soft economic landing” that would keep driving Corporate America. While the Fed has been able to successfully bring down inflation, the latest jobs figures may give officials some reason to believe their policies are cooling the labor market too much.

“Bad news is no longer good news for stocks,” said John Lynch at Comerica Wealth Management. “Of course, we’re in a period of seasonal weakness, but sentiment is fragile given economic, political, and geopolitical developments. Pressure will escalate on the Federal Reserve.”

Wall Street giants like Citigroup Inc. and JPMorgan Chase & Co. are now calling for more aggressive Fed action. Speaking on Bloomberg Television, Chicago Fed President Austan Goolsbee said officials won’t overreact to any one piece of data, echoing comments by Jerome Powell on Wednesday.

“The Fed almost always waits too long to cut rates,” said Matt Maley at Miller Tabak + Co. “Then, as investors come to realize that the rate cuts are coming more due to a slowdown in growth — rather than a drop in inflation — the situation on the stock market tends to get ugly.”

The S&P 500 slid 1.8%. The Nasdaq 100 sank 2.4%. The Russell 2000 tumbled 3.5%. Wall Street’s “fear gauge” — the VIX — hit the highest since March 2023. Intel Corp. plunged 26% on a grim growth forecast. Treasury 10-year yields slipped 18 basis points to 3.8%. The dollar fell 0.7%.

“Oh dear, has the Fed made a policy mistake?” said Seema Shah at Principal Asset Management. “The labor market’s slowdown is now materializing with more clarity. A September rate cut is in the bag and the Fed will be hoping that they haven’t, once again, been too slow to act.”

To Scott Wren at Wells Fargo Investment Institute, markets have turned attention from “when and how much will the Fed ease” to a mindset of “growth looks like it is plunging and the Fed is behind the curve.”

“After the big equity run higher, investors are taking money off the table and booking profits,” Wren said. “Expect the near-term volatility to continue.”

Nonfarm payrolls rose by 114,000 — one of the weakest prints since the pandemic — and job growth was revised lower in the prior two months. The unemployment rate unexpectedly climbed for a fourth month to 4.3%, triggering a closely watched recession indicator.

How much should investors worry about a slowdown?

“This marks an official ‘growth scare’ and one that the Fed will have to pay close attention to,” said George Mateyo at Key Wealth. “To be true, the economy is still expanding and jobs are still being added, so calls that a recession is upon us are overstated in our view. But the economic environment is changing quickly and the Fed should be attentive to downside risks.”

“The big question is: are we sliding right into a recession? Or is the economy simply hitting a rough spot?” said Ryan Detrick at Carson Group. “We’d side with we will still avoid a recession — but the risks are rising.”

At Evercore, Krishna Guha says he doesn’t think the evidence overall suggests the labor market is “cracking” — but it is clearly softening and may weaken further — so there is “ample cause for the Fed to pull forward cuts.”

To Lara Castleton at Janus Henderson Investors, the “soft landing narrative” is now shifting to “worries about a hard landing.” While fears of a policy mistake are rising, she thinks one negative miss shouldn’t lead to overreaction given that other data points that still show economic resilience.

“Equities selling off should be seen as a normal reaction, especially considering the high valuations in many pockets of the market,” she said. “It’s a good reminder for investors to focus on the earnings of companies going forward.”

With just three meetings left, swap pricing reflects the growing perception that the Fed will need to make an unusually large half-point move at one of the gatherings or act between its scheduled meetings — moving rapidly to bolster growth.

Still, large policy moves with an aggressive response could imply an emergency, triggering even more jitters among traders.

To Chris Low at FHN Financial, the market is “probably right” to think the Fed should cut by 50 basis points, but psychology is as important as data at turning points.

“FOMC participants are more likely to take it slowly with a quarter-point cut at first, if for no other reason than to project calm and control,” he said.

“From a Fed perspective, this does not translate into making hasty policy decisions, but it should help them remove the rose-tinted glasses when assessing policy decisions at the next meeting,” said Charlie Ripley at Allianz Investment Management.

Stocks are likely to fall when the Fed delivers its first rate cut because the pivot will come as data signal a hard — rather than soft — landing for the US economy, according to Bank of America Corp.’s Michael Hartnett.

In the history of the start to Fed easing since 1970, cuts in response to a downturn have proved negative for stocks and positive for bonds, the BofA strategist wrote in a note, citing seven examples that demonstrated this pattern. “One very important difference in 2024 is extreme degree to which risk assets have front-run Fed cuts,” Hartnett said.

Some of the main moves in markets:

Stocks

Currencies

Cryptocurrencies

Bonds

Commodities

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Andre Janse van Vuuren, Lynn Thomasson and Lu Wang.