The Dow and the S&P 500 declined on Tuesday after rising bond yields increased debate over how soon the Federal Reserve would start trimming its stimulus program.
Fed officials offered diverging views and added to the uncertainty about the outlook for the Fed's easy-money policies. Among them, Dallas Fed President Richard Fisher told CNBC that the Fed's program of buying $85 billion in bonds every month to stimulate the economy cannot continue forever.
The day's decline, which followed two days of gains and record high closes on the Dow, were led by financials, energy and utilities sectors. A 2.2 percent drop in U.S. oil futures hurt energy names like Chevron (CVX.N), which slid 0.9 percent to $120.
Driving the market "has been worries over the timing of the taper," said Quincy Krosby, market strategist with Prudential Financial, which is based in Newark, New Jersey.
She said investors are watching 10-year U.S. Treasury note yields, which have moved higher as speculation increases that the Fed could move sooner rather than later.
"You have various Federal Reserve officials speaking, and the message seems to be the discussion of the taper has begun."
During the session, bond yields hit their highest level since mid-September, though that level is still lower than a month ago.
The Dow Jones industrial average .DJI slipped 32.43 points, or 0.21 percent, to end at 15,750.67. The Standard & Poor's 500 Index .SPX dropped 4.20 points, or 0.24 percent, to finish at 1,767.69. The Nasdaq Composite Index .IXIC eked out a tiny gain of just 0.13 of a point to close at 3,919.92.
Volume was lighter than usual for a second day, totaling about 5.8 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, below the five-day average closing volume of about 6.62 billion, according to BATS exchange data.
Some market watchers have begun to doubt that the Fed will wait until March to cut back on stimulus after the Labor Department said on Friday the U.S. economy created 204,000 jobs in October.
On Tuesday, Minneapolis Fed Bank President Narayana Kocherlakota and Atlanta Fed President Dennis Lockhart said monetary policy should remain accommodative. Neither is currently a voting member of the Fed's policy-setting committee.
But the key Fed comments this week may come during a Senate Banking Committee confirmation hearing for Fed Vice Chair Janet Yellen, who has been nominated to succeed Ben Bernanke as Fed chairman. Yellen has been a big supporter of the Fed's current policies.
Among the day's more volatile stocks, US Airways Group Inc. (LCC.N) gained 1.1. percent to close at $23.52, reversing earlier losses. The company and American Airlines AAMRQA.UL agreed to give up landing spots and gates to low-cost carriers at several U.S. airports to win U.S. antitrust approval for their proposed merger.
Stocks of several low-cost carriers rose. JetBlue Airways Corp (JBLU.O) jumped 6.1 percent to $8.16 and Southwest Airlines Co (LUV.N) rose 1.2 percent to $18.03.
Sarepta Therapeutics (SRPT.O) was one of the day's biggest losers, plunging 64 percent to $13.16 after the U.S. Food and Drug Administration said the company's drug to treat a rare muscle disorder needed further testing. It was one of the Nasdaq's most active stocks.
In the utility sector, shares of NRG Energy (NRG.N) fell 3.5 percent to $27.06 after the power company reported results and adjusted its earnings outlook.
Dish Network Corp (DISH.O) posted quarterly results that beat Wall Street's estimates after it added 35,000 pay-TV subscribers, far exceeding expectations. The stock rose 6 percent to $50.35.
Decliners outnumbered advancers on the NYSE by a ratio of 19 to 11, while on the Nasdaq, 14 stocks fell for every 11 that rose.