Wall Street Tumbles Into Earnings Season

Updated from 4:14 p.m. EST

Wall Street faltered Monday as investors prepared to take in the first key report of the fourth-quarter earnings season.

Led by declines in Citigroup (C Quote) and Bank of America (BAC Quote), the Dow Jones Industrial Average lost 125.45 points, or 1.5%, to 8473.73, and the S&P 500 gave up 20.09 points, or 2.3%, at 870.26. The Nasdaq shed 32.80 points, or 2.1%, to 1538.79.

President-elect Obama called Monday for lawmakers to release the second half of the Troubled Asset Relief Fund (TARP), hoping to change the practices of the program which has funneled bailout money into ailing banks.

Investors, meanwhile, held focus on earnings, anticipating steep declines in fourth-quarter reports, which would be led off by Alcoa's (AA Quote) report after the market close.

Analysts, on average, were expecting Alcoa, which traded down 6.9% to $10.06 Monday, to report a loss of 10 cents a share for the quarter, according to Thomson Reuters. Deutsche Bank downgraded the aluminum producer stock to sell from hold and reined in its price target by $2 based on revised commodity estimates and Alcoa's recently announced production cuts.

"We believe these factors will likely lead to significant net losses for Alcoa in the short term and note the downside from current prices, near-term negative free cash flow and large net debt position in our sell rating," wrote DB analysts.

Companies with large debt positions are going to be in trouble in a deflationary environment, notes Matt Smith, chief investment officer of Smith Affiliated Capital. You have to add debt interest back into operating earnings -- and keep in mind that the interest expense is going to increase for any debt that's coming due in the next two years, he says. "So what you'll have is a crumbling of balance sheets."