Stocks slid on Monday as energy shares sold off on lower crude oil prices and on fears that corporate earnings may not justify a big run-up in stocks.
Investors are worried that increased raw material costs and a possible slowdown from Japan's earthquake may start to show up in earnings, and companies' forward-looking statements will be scrutinized carefully.
Aluminum maker Alcoa Inc , a Dow component, launches the earnings season with the release of results after the market's close.
We say at each quarter that the outlook is going to be more important than the actual earnings but this time seems to be like it is going to be even more so, said Scott Marcouiller, chief technical market strategist at Wells Fargo Advisors in St. Louis
Profit-taking in oil after U.S. crude futures hit a 30-month high sparked selling in energy shares. Occidental Petroleum fell 3.3 percent to $100.31 while the S&P energy index <.GSPE> fell 2 percent.
The Dow Jones industrial average <.DJI> was down 27.17 points, or 0.22 percent, at 12,352.88. The Standard & Poor's 500 Index <.SPX> was down 6.99 points, or 0.53 percent, at 1,321.18. The Nasdaq Composite Index <.IXIC> was down 18.39 points, or 0.66 percent, at 2,762.03.
U.S. crude oil futures ended 2.5 percent lower as investors heeded a recommendation from top brokerage Goldman Sachs that they take profits after the recent rally.
Profits for S&P 500 companies are seen rising 11.4 percent from a year ago, according to Thomson Reuters data, but much of that may be priced into shares. The S&P 500 is up over 5 percent this year.
Optimism over earnings contributed to recent gains, despite turmoil in oil-producing regions and the disasters in Japan. Despite the S&P 500's gains this year, light trading volume has prompted questions about the strength of the rally.
Alcoa shares slid 1.4 percent to $17.67 after rising earlier. The company is seen posting growth in both earnings and revenue. JPMorgan Chase & Co and Google Inc are on tap to report later in the week.
In corporate news, Tenet Healthcare Corp said it has sued its suitor, Community Health Systems Inc , claiming the rival hospital operator admitted patients for unneeded stays to overbill insurers, including Medicare.
Shares of Tenet sank 13.6 percent to $6.52 while Community slumped 34 percent to $26.70.
NYSE Euronext on Sunday rejected a joint buyout bid from Nasdaq OMX Group and IntercontinentalExchange and said it was sticking with an earlier bid from Deutsche Boerse AG . Nasdaq reaffirmed that its offer was superior to Deutsche Boerse's lower offer.
NYSE shares fell 2.9 percent to $37.57 while Nasdaq OMX fell 2 percent to $27.87 and ICE was 0.3 percent lower at $120.13.
Also in deal news, Endo Pharmaceuticals Holding Inc said it would buy American Medical Systems Holdings Inc for about $2.6 billion while Level 3 Communications Inc agreed to buy Global Crossing Ltd for $1.9 billion in stock.
Endo fell 0.4 percent to $40.70 while American Medical jumped 32 percent to $29.46. Level 3 rose 11.8 percent to $1.60 and Global Crossing surged 59 percent to $23.54.
Biogen Idec Inc rose 7 percent to $78.43 and was the top percentage gainer on the Nasdaq 100 <.NDX> after the company's experimental multiple sclerosis drug met the main goal in the first of two important late-stage studies.
(Editing by Leslie Adler)