Stocks finished in negative territory Thursday after the latest Fed meeting minutes revealed disagreement on how long the central bank should buy bonds and as investors took a pause following the previous session's sharp 'cliff' deal rally.
The S&P 500 dipped 3.05 points, or 0.21 percent, to end at 1,459.37. The Nasdaq declined 11.69 points, or 0.38 percent, to finish at 3,100.57. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, closed below 15.
Most key S&P sectors finished in negative territory, led by techs and materials.
Fed members expressed broad support in December for the bond purchase program to bolster the economy, but differed over how long to keep buying bonds to drive down long-term interest rates, according to the December policy-setting meeting minutes.
"Will this be an end to QE? Absolutely not, but it's interesting when you start to see some splits and dissensions—[The Fed is]playing with fire…this has never been done before," said Joe Saluzzi, co-manager of trading at Themis Trading. "The market loves QE but the market participants don't."
In December, the Fed met market expectations with another round of easing, this time with a pledge to hold interest rates low until unemployment falls below 6.5 percent and inflation tops 2.5 percent.
Stocks kicked off the first trading day of 2013 with a sharp bang Wednesday after a deal to stave off the U.S.' "fiscal cliff," with the Dow closing up 2.4 percent, Nasdaq up 3 percent and the S&P 500 up 2.5 percent. (Read More: Market Rally 'Totally Misplaced'; Scary February Ahead)
On Thursday, however, the optimism made way for uncertainty as the mood in Washington remained pessimistic.
The Senate-backed bill voted on by the House of Representatives has only prevented automatic spending cuts by two months and there are fears that the politicians will fail to reach a deal to raise the federal debt ceiling of $16.4 trillion in late February.
The fiscal deal did not include an agreement over increasing the debt ceiling and investors expect renewed brinksmanship with Republicans, who are likely to demand cuts to social welfare programs in return for raising the limit on government borrowing.
"I think this deal's a disaster," said Peter Huntsman, chief executive of chemical producer Huntsman. "We're just living in a fantasy land. We're borrowing more and more money. This did absolutely nothing to address the fundamental issue of the debt cliff." (Read More: After 'Horrid' Cliff Deal, Buy Stocks: Dennis Gartman)
Earlier this afternoon, traders reported a technical glitch affecting Nasdaq-listed securities that resulted in unusual price moves. The Nasdaq notified traders at 1:42 pm ET that it was looking into "an issue with stale data" on certain information feeds. The exchange followed up with another notice at 1:53 pm ET that the issue had been fixed.
"We don't know exactly what it was—there were problems with the main securities information processor (SIP), which is the aggregator of all the various exchanges," said Saluzzi. "When you live in an electronic world, there's no room for errors."
Google edged higher after the Federal Trade Commission closed its investigation against the search-engine giant for antitrust violations.
Retailers posted mixed monthly same-store sales results as the economy caused consumers to remain cautious during the crucial holiday shopping period. TJX and Ross Stores climbed after both off-price retailers beat expectations and raised their quarterly guidance. Meanwhile, Limited slumped after the parent company of Victoria's Secret reported a rare miss.
Biogen Idec slumped after its experimental ALS drug failed to meet its primary endpoint in a trial, and the company plans to discontinue development.
Among earnings, Family Dollar Stores tumbled to lead the S&P 500 laggards after the retailer reported lower-than-expected earnings and cut its forecast for the year.
Mellanox Technologies plunged after the communications equipment manufacturer slashed its fourth-quarter revenue outlook, citing challenging macroeconomic conditions.
On the economic front, jobless claims rose by 10,000 to a seasonally adjusted 372,000, according to the Labor Department. However, a Labor Department official said data for nine states, including California and Virginia, had been estimated last week because of the Christmas and New Year holidays, suggesting the numbers are subject to revisions next week. The four-week moving average for new claims, edged up 250 to 360,000.
Meanwhile, private sector created 215,000 new jobs in December, according to the ADP, blowing past expectations for. And planned layoffs at U.S. firms declined for the first time in four months in December, according to a report from consultants Challenger, Gray & Christmas.
The trio of data come a day ahead of the widely-watched government nonfarm payroll report, which is forecast to show 150,000 new U.S. jobs were added in December, according to a Reuters poll, up slightly from 146,000 new jobs in November.
"I think it will be a solid reading—I expect that we'll see a rebound in construction activity and a post-Sandy boost as well," said Ward McCarthy, chief U.S. economist at Jefferies. "But there's still a lot of [unfinished fiscal cliff] business…what will really give us a solid boost will be when we get through the rest of this muddle."
Weekly mortgage applications fell last week for the third-straight time as refinancings dropped to the lowest level since April, according to the Mortgage Bankers Association.
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up This Week:
FRIDAY: Employment situation, factory orders, ISM non-mfg index, oil inventories, Fed's Yellen speaks; Earnings from Mosaic
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