Stocks suffered their largest one-day decline since November after banks reported steep drops in profits Wednesday.
Goldman Sachs Group Inc. said its earnings fell 53 percent in the last quarter because of a slowdown in its trading and investment banking businesses. Northern Trust Corp. and State Street Corp. also reported lower profits.
Goldman Sachs, Bank of America Corp., JPMorgan Chase & Co. and Visa Inc. each fell by more than 2 percent.
"Banks are under pressure right now because they are not making money in places where you'd expect to see trading gains," said Quincy Krosby, a market strategist at Prudential Financial. Financial companies had rallied by more than 5 percent over the last month.
The Standard and Poor's 500 fell 13.1, or 1 percent, to 1,281.92. It was the biggest percentage drop in the benchmark index since Nov. 23.
Losses were spread across the market. Each of the 10 company groups that make up the S&P 500 index lost ground.
The Nasdaq composite fell 40.49, or 1.5 percent, to 2,725.36.
The Dow Jones industrial average of large companies held up better, partly due to a big gain in one of its 30 components, IBM Corp. IBM jumped $5.04 to $155.69 after reporting sharply higher earnings.
The Dow lost 12.64 points, or0.1 percent, to 11,825.29.
Small companies fell the most. The Russell 2000 index slumped 2.6 percent, its worst percentage loss since Aug. 19.
"A lot of these companies have a great deal of good news priced into them," said Alan Gayle, a senior investment manager at RidgeWorth Investments. "If there's a whisper of weakness out there, then they will fall the hardest."
Bond prices rose, sending their yields slightly lower. The yield on the 10-year Treasury note fell to 3.34 percent from 3.37 percent late Tuesday.
Four stocks fell for every one that rose on the New York Stock Exchange. Consolidated volume came to 4.7 billion shares.