Stocks ended near session lows Thursday pressured by a handful of weak economic data and as some Fed officials stated their openness to tapering the central bank's bond-buying program in the coming months.
(Read More: After-Hours Buzz: DELL, JCP & More)
Stocks took a leg lower in the final hour of trading after San Francisco Federal Reserve President John Williams said the central bank could begin easing up on the monetary gas pedal this summer and end its bond buys late this year if the job market improves. Earlier this morning, Philadelphia Fed President Charles Plosser said the central bank should reduce asset purchases starting next month.
"Maybe the Williams comment was a catalyst, but it's not like he said 'I want to taper now' and I think the market responded to that," said a trader. "The voting members stayed dovish and the non-dovish members talked about tapering."
(Read More: Fed 'Tapering' Talk Getting Louder)
The Dow Jones Industrial Average slumped 42.47 points to end at 15,233.22 after briefly hitting a fresh all-time high of 15,302.49. Disney and Wal-Mart led the blue-chip laggards, while Cisco soared more than 12 percent.
The S&P 500 declined 8.31 points to close at 1,650.47. The Nasdaq slid 6.37 points to finish at 3,465.24. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended near 13.
Most key S&P sectors closed in the red, led by health care and consumer discretionary, while techs rallied. Despite the weak session, major averages remain on pace for their fourth-straight positive week.
(Read More: This Could Be Just the Beginning of a Major Rally)
On the economic front, weekly jobless claims jumped,climbing at the fastest pace in six months, according to the Labor Department. Meanwhile, housing starts fell 16.5 percent in April to a 853,000-unit annual rate. Adding to woes, factory activity in the U.S. mid-Atlantic region unexpectedly contracted in May, according to the Philadelphia Fed index.
Separately, consumer prices saw the sharpest decline in more than four years in April, due to a drop in gasoline costs.
"[Despite the weak headline numbers,] the trend is still up and the economy has been improving for the last four years," said John Fox, co-manager of the FAM Value Fund. "We've gone from 14-time earnings to 16-times earnings and are not at an area where multiples are worrisome. The economy is inching ahead and companies are still growing their earnings."
(Read More: 'Profitless Rally': Stocks Heading for a Slowdown)
Among earnings, Cisco Systems surged more than 10 percent after the network equipment maker topped quarterly expectations and said current-quarter revenue could increase. CEO John Chambers also said the company was seeing positive signs in the U.S. and that other parts of the world are "encouraging." In addition, at least nine brokerages boosted their price targets on the company. Smaller rivals Juniper and Alcatel-Lucent also rallied.
Wal-Mart declined after the world's largest retailer missed earnings expectations, with U.S. same-store sales down 1.4 percent, hurt by combination of a delay in income tax refund checks, cool weather, less grocery inflation than expected, and the payroll tax increase.
Kohl's soared after the department store chain posted earnings that easily topped Wall Street expectations after cost cuts boosted margins. Piper Jaffray lifted its target price on the company to $59 from $53.
So far, more than 90 percent of S&P 500 companies have posted quarterly results, with 67 percent topping earnings expectationsand 24 percent missing forecasts, according to Reuters. If all remaining companies post numbers in line with estimates, earnings will be up 5.3 percent on last year.
However, sales numbers have come in 1 percent below estimates on average, with only 46 percent of companies beating their revenue projections.
Overseas, first quarter growth numbers from Japan topped expectations, but a drop in capital expenditure showed the economy is still dogged by deflation.
"Capital expenditure is going to continue to be a drag, despite the improvement in corporate profits. Companies are still cautious about ramping up investment and you really need to see a higher level of export growth that pushes companies to invest," said Izumi Devalier, Japan economist at HSBC.
(Read More: Hold On, Japan Still Missing Key Pillar of Growth)
"Without the third arrow of Abenomics, which is the growth strategies and structural reforms, the corporate environment is still very restrictive," she added.
Berkshire Hathaway edged lower after credit rating agency Standard & Poor's lowered its rating on the insurance and industrial conglomerate controlled by billionaire investor Warren Buffett, by one notch to "AA" from "AA-plus," citing the company's reliance on its insurance operations for dividend income.
Google briefly hit a new all-time high of $919.98 a share before quickly pulling back. Brokerages Topeka Capital and RW Baird raised their price targets on the company.
Apple gained, recovering losses after a sharp 3-percent decline in the previous session. Separately, the iPhone maker announced that its customers have downloaded over 50 billion apps from the App Store.
—By CNBC's JeeYeon Park. Follow JeeYeon on Twitter: @JeeYeonParkCNBC
Coming Up This Week:
FRIDAY: Consumer sentiment, leading indicators, Chipotle shareholder mtg, Icahn/Transocean shareholder mtg, JCPenney annual mtg
More From CNBC.com: