Alcoa's news also underscored growing anxiety over the Labor Department's upcoming report Friday on the December job market. Moreover, investors got a disappointing harbinger Wednesday in the form of the ADP National Employment Report, an unofficial gauge that the market has been increasingly monitoring as U.S. job losses mount. The report said private sector employment fell by 693,000 in December, worse than expected.
When people lose their jobs, they tend to spend less and fall behind on their debt payments. Investors fear that further declines in consumer spending will prolong the recession.
"People are concerned with the employment report coming out on Friday," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York. "The market has shrugged off some bad news recently, and it's starting to get to the point where it can't do that anymore."
The Dow Jones industrial average has rallied about 20 percent since its multiyear lows in late November 2008, and the Standard & Poor's 500 index has surged nearly 25 percent.
"We've had a big move," Fullman said. "What we're looking at now is just people getting a little cautious here."
In the first 20 minutes of trading, the Dow dropped 135.80, or 1.51 percent, to 8,879.30. The Standard & Poor's 500 index fell 16.61, or 1.78 percent, to 918.09, while the Nasdaq composite index fell 33.59, or 2.03 percent, to 1,618.79.
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