NEW YORK (CNNMoney.com) -- Stocks fell Tuesday in a broad-based selloff, after Alcoa's worse-than-expected profit report and Chevron's profit warning unnerved investors at the start of the quarterly profit reporting period.
Disappointing profit news from Alcoa and Chevron, two big Dow components, was unnerving at the start of a quarterly reporting period that is expected to bring strong growth.
The reports follow last week's weaker-than-expected December payrolls report, which raised worries about growth in the fourth quarter.
At the same time, the financial sector is under pressure as the FDIC, the top banking regulator, considers requiring lenders to pay if they tie compensation to risky practices. Meanwhile, the White House is debating taxing companies that took bailout funds to make sure they pay back the money.
"Everyone was expecting the fourth quarter to be better," said Brian Battle, vice president at Performance Trust Capital Partners. "I think the market has been taken aback by the fact that it may not have been as good as people had thought."
He said that investors were not just reacting to Alcoa's miss, but also to the recent ho-hum economic news and all the focus on the bank sector this week.
Alcoa: The Dow component reported a profit of 1 cent per share late Monday, versus a loss of 28 cents per share a year ago. Analysts expected the company to have earned 6 cents a share, according to earnings tracker Thomson Reuters. Revenue fell less than expected.
"People are expecting good fourth-quarter earnings and they are treating Alcoa as a sign that we won't have such good earnings," said Ron Kiddoo, chief investment officer at Cozad Asset Management.
"But Alcoa is one component of the earnings and it always is given too much credit if the results are good and too much credit if they're bad," he said. "We'll get a better sense of what the earnings will look like in the next few weeks."
Chevron: The oil behemoth warned late Monday that sharply lower fourth-quarter refining earnings would drag down its fourth-quarter results. Margins have been pressured because the rising price of oil is not in sync with the weaker demand globally, due to the economic slowdown.
A variety of oil stocks fell, with the Amex Oil (XOI) index losing 2%.
Other big Dow losers included Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), United Technologies (UTX, Fortune 500), Hewlett-Packard (HPQ, Fortune 500) and Caterpillar (CAT, Fortune 500).
Results and warnings: KB Home (KBH) reported a quarterly profit for the first time in two years, thanks to a tax benefit. However, the homebuilder's revenue dropped from a year ago.
S&P 500 earnings are expected to have risen around 213% from a year ago, according to earnings tracker Thomson Reuters. However, that figure reflects the easy comparisons versus a year ago, the worst quarter in Thomson's history.
The massive turnaround in the financial sector is playing a big role in the earnings recovery, with the sector expected to post a big profit after posting a loss a year ago. That the sector that helped exacerbate the recession is now profiting a year later is a major source of frustration for many investors, especially since taxpayers helped fund the bailouts.
Federal Reserve: The central bank made record profits last year, due to money made off its efforts to stabilize the financial system. The bank made a record $52.1 billion profit in 2009. Of that total, $46.1 billion gets returned to taxpayers with the rest used to cover certain deductions.
Economy: The November trade deficit, released in the morning, widened to $36.4 billion from a revised $33.2 billion in October. The deficit was expected to widen to $34.5 billion, according to a consensus of economists surveyed by Briefing.com.
World markets: Asian markets ended mixed one day after hitting 17-month highs on a report that showed China's exports jumped 17.7% in December versus a year ago. European markets ended lower.
Commodities and the dollar: The dollar gained versus the euro and fell versus the yen.
Gold and oil prices slumped.
COMEX gold for February delivery fell $22 to settle at $1,129.40 an ounce. Gold closed at an all-time high of $1,218.30 an ounce last month.
U.S. light crude oil for February delivery fell $1.73 to settle at $80.79 a barrel on the New York Mercantile Exchange.
Bonds: Treasury prices rallied in a classic flight-to-safety, lowering the yield on the 10-year note to 3.71% from 3.82% late Monday. Treasury prices and yields move in opposite directions.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by seven to three on volume of 1.097 billion shares. On the Nasdaq, decliners topped advancers by nine to four on volume of 2.403 billion shares.
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