Stocks followed commodities sharply lower throughout Tuesday's session as oil slid and investors reacted to disappointing sales results from Alcoa.
The Dow Jones Industrial Average fell 117.53 points, or 0.95 percent, to close at 12,263.58.
Alcoa, Chevron and ExxonMobil led the Dow lower all day, while Wal-Mart and Proctor & Gamble gained.
The S&P 500 dropped 10.30 points, or 0.78 percent, to close at 1,314.16, while the Nasdaq Nasdaq Composite, 26.72 points, or 0.96 percent, to close at 2,744.79.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 17.
Most key S&P 500 sectors declined, led by energy and materials.
Oil prices tumbled after Goldman said the oil market will experience a "substantial pullback" to $105 a barrel for London Brent crude, which had traded above $126 a barrel last week. London Brent crude fell more than 2 percent, to just below $121 a barrel, while U.S. light crude fell more than 3 percent, to just above $106 a barrel.
"We continue to believe that—even with the loss of Libyan production—the oil market has adequate inventory and OPEC spare production capacity to avoid the degree of physical tightness experienced in 2008 well into next year," Goldman said in a note to clients.
Goldman's decision to also book profits on metals, including gold, silver, copper and platinum, sent prices of these commodities falling as well. Gold closed nearly 1 percent lower at $1,452.90 an ounce. The dollar, meanwhile, continued to slump against a basket of currencies.
"I think we’re peaking out on commodity prices," says Jim Paulsen, chief investment strategist at Wells Capital Management, who said tightening policies in emerging markets like China are succeeding in slowing growth. "You’ll see U.S. and global growth slow a bit, which takes the upward trend out of commodities markets."
Oil drillers, suppliers and producers pushed energy stocks lower, led by Nabors Industries, Anadarko Petroleum and Chesapeake Energy .
Airlines, on the other hand, including Delta , United Continental and JetBlue were buoyed by falling oil prices. The sector has suffered for most of this year as operators struggled to offset higher jet-fuel costs by raising fares and cutting capacities. (Read More: Buy & Sell These Airlines Amid Rising Oil)