Stocks fell to their lowest level in 10 weeks Tuesday amid growing doubts about the economic recovery. There were some pockets of gains in the banking and pharmaceutical sectors.
The Dow Jones Industrial Average lost 161.27, or 1.9 percent, to close at 8,163.60. The S&P 500 shed 2 percent and the Nasdaq dropped 2.3 percent.
The shift in mood has sent the CBOE Volatility Index, widely considered the best gauge of fear in the market, higher. The VIX ended at 30.85. Just last week, the index had fallen below 25, suggesting it may go below 20. Then sentiment turned and the VIX bounded higher.
Validating investor fears about the economy, an Obama economic adviser suggested that a second round of stimulus may be needed.
"Talk of a new stimulus plan is actually a confidence killer," Joseph Battipaglia, market strategist at Stifel Nicolaus, told Reuters. "That would mean we've added a trillion dollars to debt without anything to show for it."
Adding to investor concerns, a report showed consumer credit-card debt hit an all-time highin the first quarter.
President Obama clarified remarks made by VP Joe Biden over the weekend that the administration "misread" the economic situation.
"[R]ather than say misread, we had incomplete information," Obama said. Coming into office in January, the administration didn't have the first-quarter numbers, the president explained. Those numbers showed that the economic erosion "was happening much more rapidly at an accelerated pace than the projections out there at the time," he said.
Investors are now focused on earnings season, which kicks off after the bell Wednesday, with results from Alcoa , the first Dow component to report. Analysts expect a third straight lossfrom the aluminum giant.
Alcoa was the biggest gainer on the Dow, up 1.6 percent. It was one of only four Dow stocks that were higher, including JPMorgan, Wal-Mart and Pfizer.
Cyclical stocks in the materials, energy, and industrial sectors, which had rallied recently, led today's decline.
The biggest percentage decliners on the Dow were Dupont , Caterpillar and General Electric.
Concerns about the economy have sent oil prices spiraling.
General Electric shares lost 4.1 percent following a Wall Street Journal report that the company, also the parent of CNBC, is pumping more money into its appliance unit after being unable to sell it in the current economic climate.
Oil stocks skidded as oil lost more than $1, setting at $62.93 a barrel, and Barclays cut its price targets on Chevron and ConocoPhilips .
However, Barclays raised its targets on ExxonMobil and Murphy Oil .
AIG shares tumbled another 15 percent after a federal jury ruled against the insurance giantin a case against former AIG CEO Maurice "Hank" Greenberg.
In tech land, Microsoft warned of a serious computer-security hole for computers using Internet Explorer and Windows XP. Shares fell 2.9 percent.
And Dell dropped 3.1 percent after the tech giant launched a package of hardware and software designed to help police more efficiently compile digital evidence in criminal investigations.
U.S. auto parts maker Lear officially filed for Chapter 11 bankruptcy protection on Tuesday, a day after laying out plans to restructure its $3.6 billion debt burden under a proposed deal with creditors.
Volume was lower than usual, with about 1.1 billion shares changing hands on the New York Stock Exchange. Decliners outpaced advancers, roughly 4 to 1.
Still to Come:
WEDNESDAY: Weekly mortgage applications; weekly crude inventories; consumer credit; Earnings from Family Dollar, Alcoa
THURSDAY: Chain-store sales; weekly jobless claims; wholesale trade; Fed's Duke speaks; Earnings from 3Com
FRIDAY: Import/export prices; international trade; consumer sentiment
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