Stocks stumbled in the final minutes of trading on Tuesday, with the Dow and S&P 500 posting their fourth-straight session in the red, as investors remained cautious amid uncertainties surrounding the Federal Reserve's stimulus program and budget discussions in Washington.
"We enter the day after the S&P 500 finished giving back all of last week's Fed induced euphoria," wrote Peter Bookvar, managing director at The Lindsey Group. "It's very unusual action considering how so much of the year's gains have been driven by the help of QE (The Fed's quantitative easing policy).
"We've either reached a point where the market can't keep using the same excuse to rally with the same effectiveness or we assume that the taper is coming soon anyway."
The Dow Jones Industrial Average closed 66 points down, dragged by JPMorgan and Verizon.
The S&P 500 finished off 4 points, below the 1,700 mark, while the Nasdaq ended the day just 2 points higher. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 14.
Meanwhile, the Russell 2000 index crept higher to hit an all-time high. Small-cap stocks have led for most of the year, surging nearly 27 percent.
Among key S&P sectors, telecoms and consumer staples led the laggards, while industrials finished modestly higher.
In a busy week for speeches by U.S. central bank officials, New York Fed President William Dudley and Atlanta Fed President Dennis Lockhart took a dovish tone at the start of the week. Dudley said he supported the Fed's surprise decision to delay scaling back its monthly $85 billion bond-buying program, given the lack of momentum in the U.S. economy.
Dallas Fed President Richard Fisher, however, was more hawkish, indicating that he would have opposed the inaction if he had a vote.
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Last week, she said the Federal Reserve created confusion in the market with its lack of decision to taper.
Investec analysts described the "Fed flustering" as a "very bad one-sided baseball game."
"(Chairman Ben) Bernanke threw a massive curveball with a surprise no taper on Wednesday saying any scale back would be data dependent," the analysts wrote in a note. "(On Monday) it was Dudley and Fisher off the benches, throwing dovish and hawkish fastballs just to confuse us all a bit more. The world series of mixed messages isn't over quite yet however, we have nine more Fed speakers on the mound before the week is out."
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Concerns over the debt ceiling lingered ahead of the October 1 deadline for Congress to pass a resolution to keep the government funded. If a deal is not struck, it could force a partial shutdown of the government.
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"We're going to tread water until Washington figures out what to do," said Brian Battle, vice president of trading at Performance Trust Capital Partners. "They'll likely wait until the last minute and the political solution seems to be to kick the can down the road."
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On the economic front, home prices climbed 0.6 percent in July, according to the S&P/Case-Shiller composite index of 20 metropolitan areas. Compared to a year earlier, prices were up 12.4 percent, matching economists' expectations and marking the strongest rise since February 2006.
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"The recovery in housing has been an important source of support for the U.S. economy, with residential investment adding to real GDP (gross domestic product) growth for eight consecutive quarters," said Barclays analysts Hamish Pepper and Cagdas Aksu in a note on Monday.
Meanwhile, the consumer confidence index declined slightly in September to 79.7 from a revised 81.8 in August, according to the Conference Board. Economists polled by Reuters expected a reading of 79.9.
Treasury prices gained after the government auctioned $33 billion in 2-year notes at a high yield of 0.348 percent. The bid-to-cover ratio, an indicator of demand, was 3.09.
