Stocks fell sharply on Tuesday, with the Dow dropping to a five-week low, after a Federal Reserve official said rate hikes might come sooner than expected and Staples and other retailers offered disappointing quarterly results.
The Dow Jones Industrial Average closed unofficially down 137 points, the S&P 500 was 12 points lower and the Nasdaq lost 28 points. The small-cap Russell 2000 Index dropped nearly 10 percent from its March record and the Chicago Board Options Exchange Volatility Index, a measure of investor uncertainty known as the VIX, rose 5.1 percent.
"The thing I hear most is the question of whether the sharp downturn in interest rates signals underlying weakness in the economy that we haven't recognized. It focuses investors back on the fundamental reports, so when you get a bad retail sales number, you tend to take it more seriously," said Bruce McCain, chief investment strategist at Key Private Bank.
"We prepaid a lot of this year's earnings growth with the big run up last year, and the real results are sluggish enough so there is not enough to get into high gear as far as a rally goes," McCain added.
Equities fell to session lows after the Fed's Bank of Philadelphia President Charles Plosser said the central bank's current tapering off of stimulus could be too slow if the economy improves as forecast.
"We paid attention to what might be different. In a vacuum of catalysts, the market looks for something to react to, so we had a knee-jerk reaction when we hear something different," said Art Hogan, chief market strategist at Wunderlich Securities.
"That would be a big concern, I don't think the market believes that, we thought we were safe until 2015," said Dave Richmond, president of Richmond Brothers, referring to comments Tuesday afternoon by Plosser in Washington.
Stocks started in the red as Wall Street reacted to quarterly reports from a number of retailers, and disappointing numbers from Caterpillar, which led blue-chip declines after the maker of construction and mining equipment disclosed in a regulatory filing that total retail sales of machines in the three-month rolling period that ended in April were off 13 percent.
Staples shares dropped over 12 percent after it projected a drop in sales in the current quarter as it competes with online retailers, mass merchants and drugstores.
Dick's Sporting Goods stock fell nearly 18 percent after it forecast current-quarter earnings far under analysts' average estimate and reduced its full-year 2014 adjusted earnings and same-store sales growth outlooks.