Stocks slumped on Wednesday as the market continued to gauge when the Federal Reserve might start to reduce its $85 billion in monthly bond purchases. Apple was a standout as some big investors took stakes in the smartphone maker.
The Dow Jones Industrial Average was firmly lower on the day, pressured by losses in Home Depot and Johnson & Johnson. Bank of America was the top gainer on the Dow 30.
The S&P 500 and the Nasdaq both closed with moderate losses.
In company news, Apple shares gained nearly 2 percent, a day after activist investor Carl Icahn revealed he had taken a large stake in the company.
Leon Cooperman's Omega Advisors also took a small 31,000 share stake in the company last quarter, according to its latest SEC filing. Cooperman told CNBC's Scott Wapner that he got back into the iPhone maker in the low $400s and that he agrees with Carl Icahn that Apple is cheap. Cooperman still thinks the best play in the space is Qualcomm, however.
Apple stock is up about 10 percent over the past three days, its strongest three-day winning streak since May 2010.
On the downside, Macy's whiffed on earnings, posting a profit of 72 cents a share that missed estimates by 6 percent. Guidance also was weak, sending shares tumbling and dragging down the broader consumer discretionary sector.
"To see Macy's miss by a wide margin is troublesome, speaking volumes about the health, or lack thereof of Middle America," said Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisors.
In other earnings reports, Deere reported strong earnings of $2.56 a share, easily beating Wall Street expectations, but investors are concerned the farm cycle has peaked.
In deal news, Steinway Musical Instruments jumped on news that Paulson & Co. will purchase the company for $40 a share.
Fed uncertainty persists
St. Louis Fed President James Bullard said on Wednesday the central bank needs to see more data in the second half of the year before it starts to cut back on its monthly bond purchases and that if it tapers while inflation is low it risks deflation.
Bullard's comments follow a talk by Atlanta Fed President Dennis Lockhart on Tuesday which downplayed the notion that the central bank would begin winding down its stimulus program in September.
Data Tuesday showed U.S. retail sales rose by half a percent in July, their fastest pace in seven month, keeping talk alive that the Federal Reserve may begin tapering its asset purchases following the central bank's September meeting.
Markets have greeted positive growth with mixed emotions as it serves as a further harbinger that historically easy monetary conditions are winding down.
While investors have been anticipating the Federal Reserve will begin unwinding its monthly bond purchases as soon as September, economic data indicated that inflation, at least, is of little concern.
Producer prices excluding food and energy rose just 0.1 percent in July, while including those items put the index at flat.
"We believe the Fed will begin to dial back some of the stimulus but that is not the same thing as having an inflation scare drive yields up," Stephen Wood of Russell Investments told CNBC. "One is more controlled. The other one is less controlled."
Bullard also said that inflation was running low, and that it was important for inflation to hit the Fed's 2 percent target before it starts to taper or it could risk deflation.
"Inflation has been running very low. I have been concerned about low inflation," St. Louis Fed President James Bullard told a Rotary Club luncheon in Paducah, Kentucky. There has "not been much indication, so far, that it has been ticking back up toward target," he said. But he warned inflation could become excessive in the future.
In Europe, markets closed higher after data showed the euro zone expanded by 0.3 percent in the second quarter, quarter-on-quarter, marking an end to the region's recession.
Earlier in the day, Germany and France posted forecast-beating growth for the second quarter. Germany's economy grew by 0.7 percent, as domestic public and private consumption picked up, while France leaped out of recession, posting 0.5 percent growth.
"The euro zone still has a long way to go before positive growth numbers can honestly be called recovery, but relief should stand above skepticism, at least for one day," said Carsten Brzeski, senior economist at ING.