The Dow Jones industrial average fell 77.43 points, or 0.48 per cent, to 16,202.46, the S&P 500 lost 6.4 points, or 0.33 per cent, to 1,932.36 and the Nasdaq Composite dropped 18.27 points, or 0.38 per cent, to 4,734.48.
Stocks made a stunning recovery in the final hour of trading, however, rebounding from a drop of more than one per cent.
The Volatility Index, otherwise known as the “Fear Index”, jumped 3.9 per cent to 22.99, indicating that investors remain unsure of the direction of monetary policy.
Heavy vehicle maker Caterpillar was the greatest weight on the index, closing nearly 6.3 per cent lower on news the firm will cut up to 5,000 jobs by the end of 2016 and lowered guidance.
“The [Caterpillar] news is not helping matters, it's emblematic of a weaker global economy," said Joseph Quinlan, chief market strategist for US Trust, in New York.
Gilead Sciences was the biggest drag on the S&P 500, dropping almost three per cent to $102.58.
Healthcare stocks have been under pressure since Hillary Clinton, the leading US Democratic Presidential candidate, vowed earlier this week to stop “price gouging” by drug companies.
Utilities were the strongest sector with a 0.8 per cent rise, while the energy index eked out a 0.4 per cent gain. US crude oil settled higher in what was also a volatile day for the commodity.