U.S. stocks closed lower for a third straight session on Tuesday as heavyweight technology names extended their sell-off to send the Nasdaq into correction territory, while Tesla suffered its biggest daily percentage drop after the stock was passed over for inclusion in the S&P 500.

Each of the 11 major S&P sectors were lower, led by declines in technology and energy. Reports on Friday that SoftBank made significant option purchases during the run-up in U.S. stocks added to investor nervousness.

Technology once again dragged indexes lower with a drop of 4.59%, the third straight decline and worst three-day performance for the sector since mid-March. Even with the recent drop, the sector remains the best performer on the year.

"Things got expensive, they ran up, they got very concentrated and people got really giddy," said Willie Delwiche, investment strategist at Baird in Milwaukee. "Everyone is all loaded up on one side, it doesn’t take much of a ripple to knock some apples off the cart."

The Dow Jones Industrial Average fell 632.42 points, or 2.25%, to 27,500.89, the S&P 500 lost 95.12 points, or 2.78%, to 3,331.84 and the Nasdaq Composite dropped 465.44 points, or 4.11%, to 10,847.69.

Energy shares slumped 3.71% as oil prices fell below $40 a barrel.

Media reports of SoftBank's option purchases also reminded investors that market makers might have billions of dollars' worth of long positions as hedges against options trades.

Wall Street's rally, which has been fueled in large part by massive amounts of monetary and fiscal stimulus, screeched to a halt last week with the Nasdaq falling as much as 9.9% from its intraday record as investors booked profits after a run that lifted the index about 70% from its pandemic lows. Tuesday's losses put the index down 10% from its closing record, confirming a correction began on Sept. 2.

At session lows on Tuesday, Facebook, Amazon.com , Apple, Tesla, Microsoft, Alphabet and Netflix had collectively lost more than $1 trillion in market capitalization since Sept. 2.

Tesla plunged 21.06% to suffer its biggest daily percentage drop as the electric-car maker was excluded from a group of companies being added to the S&P 500. Investors had widely expected its inclusion after a blockbuster quarterly earnings report in July. Up to Friday's close, the stock had surged about 400% this year.

JPMorgan Chase & Co fell 3.48%, after a report it was probing employees who were allegedly involved in the misuse of funds intended for COVID-19 relief. The wider banks index lost 3.44%, also tracking Treasury yields.

A gauge of value stocks fell 1.84%, but outperformed the broader market and a 3.38%, decline in the growth index . Wall Street's fear gauge climbed for the third time in four sessions.

Concerns over potential U.S. sanctions against China's biggest chipmaker, SMIC, hit domestic suppliers, with the PHLX semiconductor index down 3.43%.

General Motors Co jumped 7.93% after it acquired an 11% stake worth $2 billion in U.S. electric-truck maker Nikola Corp. The truck maker's shares surged 40.79%.

Declining issues outnumbered advancing ones on the NYSE by a 3.78-to-1 ratio; on Nasdaq, a 2.22-to-1 ratio favored decliners.

The S&P 500 posted no new 52-week highs and 2 new lows; the Nasdaq Composite recorded 31 new highs and 49 new lows.

Volume on U.S. exchanges was 10.48 billion shares, compared with the 9.32 billion average for the full session over the last 20 trading days.

GLOBAL MARKETS

Global equity markets and oil prices tumbled on Tuesday as a sharp sell-off in technology stocks and rising concerns over Britain leaving the European Union without a trade agreement threatened the rally that had pushed world shares near record highs despite the coronavirus pandemic.

Fresh tensions between Washington and Beijing came into focus but appeared to have little impact, after U.S. President Donald Trump again raised the idea of decoupling the U.S. and Chinese economies.

"I think the market will shrug this off as electioneering but may find the lining up of technology stock sellers harder to process as the U.S. market returns from a holiday yesterday," said Chris Bailey, European Strategist at Raymond James.

MSCI's gauge of stocks across the globe shed 2.08% following broad declines in Europe and modest gains in Asian markets.

While many market players were unable to pinpoint a single trigger for the Nasdaq's plunge, valuations have been stretched given its approximately 75% gain from a bottom hit in March with big bets on the option market possibly creating extra turbulence.

"Whatever the reason ... tech and growth investors have to decide whether this is a chance to buy on the dips - yet again - or a call to lock in what could be substantial profits," said AJ Bell Investment Director Russ Mould.

In foreign exchange markets, the dollar rose slightly against a basket of currencies at 93.291 and stood up against the euro at $1.1800 with the main focus on Thursday's ECB policy meeting.

Most analysts do not expect a change in the central bank's policy stance but are looking at its inflation forecasts and whether an accommodative tone could help cool down the surge in the bloc's single currency.

"I think the ECB's message will be clearly dovish, given the latest numbers on inflation and the recent rally in the euro," said Pasquale Diana, Senior Macro Economist at investment manager AcomeA SGR.

Investors moved into the perceived safety of U.S. government bonds. Benchmark 10-year notes last rose 12/32 in price to yield 0.6853%, from 0.723% late on Friday.

Concerns also rose about the path of Britain's exit from the EU after the head of the UK government's legal department quit over suggestions that Prime Minister Boris Johnson was threatening to override parts of the Withdrawal Agreement treaty signed in January, increasing the chances of a disorderly Brexit .

Oil fell on worries that a recovery in demand could weaken as coronavirus infections flare up around the world.

U.S. crude recently fell 7.19% to $36.91 per barrel and Brent was at $40.07, down 4.62% on the day.