Stocks ended lower Wednesday, with the Dow and S&P closing in the red for the fifth-straight day, as jitters over budget talks in Washington continued to weigh on markets.
Major averages are on track for their first losing week in four.
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"The market is vulnerable to negative news. You have the market watching dysfunction in Washington in real-time, and it's been choppy and down five days in a row, and then you introduce a new catalyst with Wal-Mart's and it represents a large part of the consumer," said Art Hogan, managing director of Lazard Capital Markets.
The Dow Jones Industrial Average dropped 61 points to finish lower for the fifth-consecutive session, led by Wal-Mart. The retail giant's shares took a sharp leg lower in midday trading after a Bloomberg report said the firm was cutting orders amid rising inventories.
Wal-Mart told CNBC that the report was "misleading," saying the company has hundreds of categories and that inventory levels change all the time. Wal-Mart shares recovered and ended the day just 1.4 percent lower.
The S&P 500 and the Nasdaq also closed lower. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 14.
Earlier, the Russell 2000 small-cap index climbed to hit a record high for the second-consecutive session.
Among key S&P sectors, financials rose, while healthcare held losses.
Investors seemed reluctant to jump in amid concerns that Congress will be unable to solve the country's debt ceiling problems, which could lead the government to default on its debt next month. Investors also considered the possibility that the U.S. government might shut down on Oct. 1, which could hit economic growth.
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On the economic front, new home sales gained 7.9 percent in August to an annual rate of 421,000 units, but held near their lowest levels this year, according to the Commerce Department. The pace of sales was in line with analysts' expectations according to Reuters.
Weekly mortgage applications gained for a second week as interest rates declined, according to the Mortgage Bankers Association.
And orders for long-lasting U.S. manufactured goods edged higher in August -- a signal that the factory sector gained a step midway through the third quarter. Durable goods orders rose 0.1 percent during the month, the Commerce Department said.
The government sold $35 billion in 5-year notes at a high yield of 1.436 percent. The bid-to-cover ratio, an indicator of demand, was 2.67, which compares to a recent average of 2.70.