Australia’s share market has suffered its worst day since the onset of the pandemic as fears of a US recession prompted investors to exit their positions, erasing more than $100bn in value from local stocks.

A sea of red overwhelmed the local market on Monday, with the benchmark S&P/ASX200 index down by 3.7% to 7,649 at the close.

The losses over the last two trading days equate to $160bn, according to calculations by the Sydney-based Ophir Asset Management, with more than $105bn shed on Monday alone.

The global sell-off was replicated across Asia with so-called risk assets, which include equities and certain currencies including the Australian dollar, all down. Meanwhile, safe haven assets like bonds rallied.

Japanese stocks were hit particularly hard, recording one of their worst ever daily sell offs, according to Nikkei Asia, rivalling the Black Monday crash of October 1987. The Nikkei share average is down 15% over three sessions.

The volatile conditions erupted last week after the US Federal Reserve indicated interest rates would soon be cut, in what was initially seen as a stimulus for shares leading to a sharp rally.

But the gains quickly evaporated and a sell-off took hold as investors started interpreting the impending rate cuts as a sign the world’s biggest economy was faltering.

That view firmed when data on Friday showed that US hiring had slowed and the unemployment rate increased to 4.3%, marking the highest level in nearly three years.

“Frankly, the market has started pricing in bad news as bad news,” said Omkar Joshi, chief investment officer at Opal Capital Management.

“Previously, markets have actually rallied off the back of rate cuts. The big difference is this time, bad news has been taken to be bad news, and markets have come off quite aggressively.

“The concern with the payroll data is that it can imply a recession is coming quicker … and that it is a bad indicator in terms of the health of the economy.”

The weak US jobs data triggered a recession indicator called the Sahm rule, which signals a recession is under way.

The big stock market falls end a period of strong gains led by the chip maker Nvidia and the wider tech sector.

The ASX plunge has been driven by the US but local factors – such as an impending Reserve Bank interest rate decision – could start to exert some influence.

Luke McMillan, the head of research at Ophir Asset Management, said it was too early to definitively say the US was headed for recession.

“There’s a number of pillars of support still there with balance sheets of corporates and households that aren’t that geared,” said McMillan.

“You’ve also got very significant fiscal stimulus coming from the US government which will continue in an election year.”

Historically, stock markets have tended to rally during election cycles dominated by populist spending measures.

Reuters contributed to this report