The Nasdaq composite index lost 47.33 points, or 1.5 percent, to 3,065.02.
The slide came on the five-year anniversary of record high closes for the Dow and S&P 500. The Dow is about 700 points off its all-time high, 14,164.53. It would take a 5 percent rally from here to reach the record.
Investors were discouraged by an International Monetary Fund report released overnight that said the global economy was weakening and the downturn afflicting developing nations has begun to spread.
The IMF forecasts that the world economy will expand 3.3 percent this year, down from the estimate of 3.5 percent growth it issued in July. Its forecast for growth in 2013 is 3.6 percent, down from 4.1 percent in April.
After the market closed, Alcoa, the aluminum company, said it earned 3 cents per share in the most recent quarter after accounting for special charges. Wall Street was expecting break-even.
Alcoa stock ended the regular trading day up a penny at $9.13 and gained an additional 7 cents in the first half-hour after the earnings report. Alcoa is the first of the 30 stocks in the Dow to report earnings.
Overall, analysts expect earnings at S&P 500 companies to be down compared with last year, the first decline in almost three years.
Talley Leger, investment strategist at Macro Vision Research, noted that the IMF report came while Greek protests erupted again in Athens over budget-cutting measures and after a downgrade of Cyprus' credit rating on Monday.
"It's all negative headlines today," Leger said. "There's a lot of European fears."
Leger added he wouldn't be selling stocks given that Federal Reserve and other central banks are trying to stimulate economies around the world. The Fed has committed to buying $40 billion in mortgage bonds per month until the economy heals.
"With markets so firmly supported by central bankers, I don't want to be defensive," Leger said. "It's a gift" to investors.
Earlier Tuesday, the National Federation of Independent Business reported that business owners became increasingly pessimistic during September because of the weak hiring environment and poor sales.
Nonetheless, the number of owners who expect business conditions to improve in six months gained four percentage points. Those believing it's a good time to expand rose three percentage points.
Energy stocks were the only major group in the S&P 500 to finish higher, and just barely. So-called consumer discretionary stocks, including companies like hotels and luxury stores that depend on a healthy economy, fell 1.5 percent as a group.
Among stocks making big moves, Edwards Lifesciences dropped $22.81 to $84.60 after the company reported revenue that fell well short of analyst forecasts. Sales of its Sapien heart valves were weaker than the company had expected.
Stanley Black & Decker, the tool maker, fell $1.99 to $72.24 after saying it would sell its hardware and home-improvement business to Spectrum Brands Holdings for $1.4 billion in cash.
Eli Lilly, the drugmaker, rose $1.03, or 2 percent, to $51.81 after two studies found that its experimental Alzheimer's drug may modestly slow mental decline.