Dow sinks 200 as profit results disappoint

U.S. stocks closed sharply lower Tuesday as investors hoping for signs of a rebound in corporate profits were greeted with a quarterly earnings miss from one company and a profit downgrade from another.

Investors also began turning their focus once again to interest rates, pushing long-term yields higher.

The Dow Jones industrial average closed down 200 points, or 1.1%, to 18,128.66, as aluminum maker Alcoa kicked off the unofficial start to the third-quarter earnings season by reporting sales and earnings that fell short of targets. Adding to the angst was biotech company Illumina, which cut its revenue forecast for both the quarter that ended in September and the final quarter of 2016.

The broad Standard & Poor's 500 index fell 1.2% and the Nasdaq composite, which started Tuesday's session within 0.2% of its record high, slid 1.5%.

The woes of Alcoa and Illumina hurt market sentiment, as investors are hopeful that third-quarter profit growth for the S&P 500 can finish positive, and end a dismal four-quarter streak of contracting earnings growth, according to Thomson Reuters data. Currently, analysts forecast earnings to contract a little less than 1% in the July thru September quarter.

"I think there are some concerns over third-quarter earnings," says Bill Hornbarger, chief investment strategist at Moneta Group.

The good news is the earnings season is just underway and the storyline could turn more positive as more companies report, says Doug Cote, chief market strategist at Voya Investment Management.

"The market will be wobbly until we really get to the crux of the reporting period," Cote says.

U.S. long-term bond yields continued to rise amid fears the Federal Reserve will raise short-term rates later this year. The yield on the 10-year Treasury note was slightly higher at 1.76%. Earlier Tuesday, it hit 1.8% for the first time since early June, marking a four-month high.

Futures markets are now pricing in roughly 70% odds of a rate hike at the Fed's December meeting, according to CME Group. Low rates have been a key driver of stock prices in the bull market, and more recently fears of rate hike have dragged down once-hot stocks that pay out plump dividends, or income, and are less appealing in an environment of rising rates.

Also hurting the broader market was a dip in the price of U.S.-produced crude, which fell 52 cents, or 1%, to $50.80 per barrel, putting the brakes on a big rally that has been fueled by hopes of an OPEC production cut, which gained more credence Monday when Russian President Vladimir Putin expressed his support.