Stocks ended near session lows Wednesday, with the S&P 500 and Nasdaq down more than 1 percent each, following the Federal Reserve's meeting minutes and as investors paused a day after all three major averages closed at fresh multi-year highs.
(Read More: After-Hours Buzz: TSLA, PAY, CAKE & More)
"The selloff started after the Fed minutes–the minutes signaled that the Fed may not continue its bond-buying program down the road," said Keith Bliss, senior vice president at Cuttone & Co. "People have been looking for excuses to sell, but we're going to need a few more days to confirm if this is an actual pullback."
The Dow Jones Industrial Average slumped 108.13 points, or 0.77 percent, to close at 13,927.54, dragged by Bank of America and Alcoa.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, soared nearly 20 percent to close above 14, posting its biggest one-day percentage jump since November 2011.
All key S&P sectors finished in the red, led by materials and energy.
"When we started to fall, volume picked up quite a bit—seems like people are anticipating and preparing for the selloff," noted Bliss.
NYSE total volume topped 4 billion shares for the first time since January 2.
Minutes from the Fed's latest meeting showed that policymakers remain divided on the timing and amount of asset purchases, with some members saying that the bond buying program may need to end prior to the achievement of the central bank's previously announced goal of improvement in employment.
In January, policymakers voted to keep its QE3 policy, at a $85 billion monthly pace, while committing to hold interest rates near zero until unemployment reaches 6.5 percent.
"If the economic numbers continue to be good or OK, [the Fed] will try to phase out this asset purchase plan, so I don't think they're going to continue to buy $85 billion a month all the way through December and sometime in 2014, we might see our first rate hike," said David Kelly, chief global strategist at JPMorgan Funds. "[But for now,] this is pretty positive for the equity market—...the Fed feels good about the economy and is committed to keeping rates low."
In addition, traders pointed to rumors that some hedge funds had been forced to sell their positions across several commodities, putting pressure on materials and energy.
(Read More: Cramer: There's a 'Great Schism' in This Market)
So far, the Dow and S&P 500 have gained an impressive 7 percent since the beginning of the year. The Dow is less than 2 percent of its all-time closing high of 14,164.53 hit on October 9, 2007.
(Read More: When Will This Big Pullback Finally Happen?)
"We're not surprised to see the market take a bit of a breather," said Cam Albright, director of asset allocation at Wilmington Trust Advisors. "We still like owning stocks—if you look out another two to three quarters, it's still not a bad picture—economic growth will be in the 2 to 2.5 percent range, China will avoid it hard landing, fiscal issues will get further resolved, Europe will be more stable, and the Fed will continue to support the market."
Meanwhile, Office Depot and OfficeMax announced a deal, after a morning filled with confusion and false starts. The office suppliers said the new company would be valued at nearly $18 billion. Shares of both companies slumped following the announcement. Earlier this morning, the original terms were announced prematurely in Office Depot's fourth-quarter earnings release, according to the New York Times.
Apple slumped following news that major supplier Foxconn Technology placed a hiring freeze on its largest plant in Shenzhen. Foxconn denied reports that the reason for the freeze was because of Apple's smartphones, but because of an "unprecedented rate of return of employees" following the Lunar New Year holiday compared to years past. Meanwhile, UBS said Foxconn's freeze may be attributable to Hewlett-Packard instead of Apple. (Read More: No Opportunity In Apple: Terranova)
"We are forecasting a 12 percent year-over-year PC revenue decline for HP in the quarter to be announced tomorrow (during the company's earnings release)," wrote UBS analyst Steven Milunovich. "[On Tuesday] Dell indicated that PC demand and pricing remain difficult. In addition, we are concerned about printer demand and that the declines in printer hardware shipments will begin to affect supplies revenue over the next few quarters."
Garmin tumbled to lead the S&P 500 laggards after the GPS maker posted weaker-than-expected earnings and forecast full-year results below Wall Street estimates.
Yahoo announced it is rolling out a new look for its website over the next few days. The newsfeed format containing stories, pictures or video will be similar to social-media feeds on Facebook and Twitter.
On the economic front, housing starts tumbled 8.5 percent in January, though new permits for construction jumped to a 4-1/2 year high, according to the Commerce Department. Meanwhile, producer prices rose for the first time in four months in January, according to the Labor Department. (Read More: CNBC Explains: What Are 'Housing Starts'?)
(Read More: Pisani: Is Housing Slowing Down?)
Weekly mortgage applications declined for a second week as refinancing and loan requests slipped last week, according to the Mortgage Bankers Association.
"Housing is going to continue to do fairly well this year and the spring selling season in April and May will be the critical months to confirm we've got a good recovery on the way," said Albright.
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up This Week:
THURSDAY: Consumer price index, jobless claims, PMI manufacturing index flash, existing home sales, Philadelphia Fed survey, leading indicators, natural gas inventories, oil inventories, Fed's Bullard speaks, Fed's Williams speaks, Fed balance sheet/money supply, Fed's Fisher speaks, weekly rail numbers; Earnings from Wal-Mart, Chesapeake Energy, Hormel, Safeway, AIG, Hewlett-Packard, Cabot Oil & Gas, Newmont Mining, Nordstrom
FRIDAY: Fed's Powell speaks, Wynn shareholders meeting; Earnings from Abercrombie & Fitch, Washington Post
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