Cruise operators Carnival Corp, Royal Caribbean Cruises and Norwegian Cruise Line plunged more than 9% each, while shares of United Airlines, Delta Air Lines and American Airlines fell nearly 10%.
Ten of S&P’s top 11 sectors fell early in the session, energy slipping 6.3%, followed by financials and industrials.
The Russell 2000 index of small caps focused on the domestic market fell 3.6%, reaching its lowest level in more than four weeks.
The S&P 500 Banks Index plunged 5.1% as investors reduced bets on faster hikes in US interest rates.
Global stock markets sold off strongly after reports the new variant was detected in South Africa, with scientists claiming it has an unusual combination of mutations, may be able to evade immune responses and could be more transmissible.
The European Union, Britain and India were among the places to announce tighter border controls. A senior US infectious disease official said a ban on flights from southern Africa was a possibility.
“The stocks are reacting negatively because it is not known at this point to what extent the vaccines will be effective against the new strain, and therefore this increases the risk of further blockages which lead to an economic blow,” said Peter Garnry, head of the equity strategy at Banque Saxo.
As of 10:06 a.m. ET, the Dow Jones Industrial Average was down 906.49 points, or 2.53%, to 34,897.89, following its worst day since late October 2020.
The S&P 500 was down 86.05 points, or 1.83%, to 4,615.41 and the Nasdaq Composite was down 214.71 points, or 1.36%, to 15,630.52.
The CBOE volatility index, commonly known as the Wall Street fear indicator, hit its highest level since September 20.
High inflation in the United States, coupled with strong economic data and the re-appointment of Jerome Powell as Fed chairman by President Joe Biden, had prompted market participants to increase their bets on the first rate hikes. interest next year, pushing US stocks down from their all-time highs this week.
“(New Variants) appears to be a great catalyst adding some negativity in an already overvalued market looking for a reason to take a break,” said Jeff Carbone, Managing Partner at Cornerstone Wealth.
“Stay at home” names such as Netflix Inc, Peloton Interactive and Zoom Video Communications jumped 1.3% to 8.4%.
The defensive healthcare sector outperformed, driven by vaccine makers including Pfizer Inc and its partner BioNTech SE as well as Moderna Inc, which climbed 7.3% to 21.9%.
Trading volumes are expected to be low during the short trading session as markets close at 1 p.m. ET, one day after the Thanksgiving holiday.
Falling issues outnumbered advances for a 7.68-to-1 ratio on the NYSE and a 5.17-to-1 ratio on the Nasdaq.
The S&P Index recorded six new 52-week highs and 19 new lows, while the Nasdaq recorded 12 new highs and 203 new lows.