Investors have been watching closely for any indication of which way the economic winds are blowing.
"I get extremely nervous because when the market drops, it reflects what our economy's doing," said former day trader John Blalock.
The downward spiral was fed by a string of negative economic news. Financial services firm Morgan Stanley issued a warning that the U.S. and Europe are "hovering dangerously close to a recession." That was followed by a report of a manufacturing slowdown, an increase in jobless claims, and a rise in inflation.
Christopher Thornberg, Ph.D., a managing partner of Beacon Economics, does economic forecasting for the state controller's office. He's not convinced of a double-dip recession.
"Right now there's not a fundamental driver for a second downturn in the U.S. economy. What's going to happen is over the next couple of months, numbers are going to come in, they're going to be a little better than people think, and as a result of that, this is going to settle out," said Thornberg.
The Federal Reserve Bank of Philadelphia, however, said manufacturing orders dropped sharply in July to the lowest level in almost two-and-a-half years. That could translate into more job losses.
There was also disappointing real estate news. Sales of existing homes fell 3.5 percent last month to an eight-month low. Market jitters could soon work its way into consumer spending and that's important to retailers with the holiday shopping period ahead.
Volatility has also swept across European markets where Italy and Greece, among others, are facing a debt crisis from deficit spending, similar to the U.S.
"What they're going to have to do is to deal in very serious ways with this problem -- cutting a lot of spending and having to raise taxes, and the Italian government is doing this right now," said Marco Pagani, Ph.D., from the Center for Banking and Financial Services.
Here in Silicon Valley, one bright spot remains -- clean technology.
"Just in the same way that employing information technology makes the economy more productive, so, too you can do more production with a smaller amount of energy, that's inherently a productivity enhancer," said Mike Dorsey, a Westly Group venture capitalist.
We'll get a better picture of the Silicon Valley and state economy on Friday when the unemployment figures for July come out.