Stocks finished slightly lower in lackluster trading Friday, extending their losses for a third-straight session. Major indexes posted their first back-to-back weekly losses since late June.
The Dow posted its biggest weekly decline this year.
"We've seen a brief correction of 3 to 5 percent off the recent highs and I would suspect the market to be choppy and sideways from here going into the next Fed meeting," said Matt Kaufler, portfolio manager of the Federated Clover Fund. "We're trying to add to more cyclically oriented sectors during this pullback."
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The Dow Jones Industrial Average fell 30.72 points to close at 15,081.47, dragged by Verizon and Pfizer. The blue-chip index broke below its 50-day moving average on Thursday.
The S&P 500 slid 5.49 points to finish at 1,655.83, breaking below its 50-day moving average. The Nasdaq dipped 3.34 points to end at 3,602.78. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended below 15.
The Dow and S&P 500 have slumped more than 3 percent from their all-time highs hit on Aug. 2.
Among key S&P sectors, defensive areas such as utilities and telecoms led the laggards on the heels of rising interest rates. The 10-year Treasury note yield rose to 2.86 percent, touching a fresh two-year high.
For the week, the Dow declined 2.23 percent, the S&P 500 slumped 2.10 percent and the Nasdaq dropped 1.57 percent.
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On the economic front, the consumer sentiment index slipped to 80 in August from 85.1 in July, according to the Thomson Reuters/University of Michigan's preliminary reading on the overall index.
Housing starts rose 5.9 percent to a seasonally adjusted annual rate of 896,000 units in July, according to the Commerce Department, which was less than the expected 900,000 unit rate expected by economists polled by Reuters. June's starts were revised up to show a 846,000-unit pace instead of the previously reported 836,000 units.
"The housing numbers were reasonably healthy—they're not as robust as they were earlier in the year but there's been some concern about rates being notably higher and whether that's going to choke off the recovery in housing," said Kaufler. "And the consumer sentiment reading—even when it was a disappointing number—was already telegraphed by the recent weak reports from retailers."
Kaufler said he is bullish on the homebuilders.
"By historic norms, even if rates tick up a little from here, I don't think it undercuts the rebound in housing," he explained.
And nonfarm productivity rose in the second quarter at a 0.9 percent annual rate as output increased more than hours worked, according to the Labor Department. Economists polled by Reuters had expected productivity to gain at a 0.6 percent rate.
Among earnings, Dell topped quarterly expectations, but profits were 72 percent below year-ago levels amid falling PC sales.
Applied Materials missed quarterly expectations forecast current-quarter earnings below analyst estimates. Separately, the company appointed president Gary Dickerson as its new CEO. Still, shares finished higher, reversing earlier losses.
Nordstrom edged past earnings expectations but cut full-year earnings and revenue outlook amid sliding same-store sales, sending shares lower.
In Asia, China's benchmark index pared gains on Friday after a sudden burst of buying that saw the index spike 5.6 percent on stimulus rumors and futures expiration. The rest of Asia was broadly lower in response to Shanghai's volatile trade and Wall Street's overnight fall.
Meanwhile, violent clashes continued in Egypt. The Muslim Brotherhood party, protesting the ousting of President Mohamed Morsi, called for a nationwide "millions' march of anger" to protest against the military crackdown. More than 600 people have been killed in the unrest, according to the Egyptian ministry of health, although higher figures are being reported.
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up Next Week:
MONDAY: Google IPO anniversary; Earnings from Urban Outfitters
TUESDAY: Chicago Fed nat'l activity; Earnings from BHP Billiton, Home Depot, Medtronic, Best Buy, Dick's Sporting Goods, TJX, Barnes & Noble, JCPenney, Saks, Analog Devices, La-Z- Boy
WEDNESDAY: Mortgage applications, existing home sales, oil inventories, FOMC minutes, Office Depot annual meeting; Earnings from Target, JM Smucker, Lowe's, Staples, American Eagle, Toll Brothers, Hewlett-Packard, L Brands
THURSDAY: Jobless claims, PMI manufacturing index flash, FHFA home price index, leading indicators, natural gas inventories, Fed's Fisher speaks, Fed balance sheet/money supply, Walmart summit; Earnings from Dollar Tree, Gamestop, Gold Fields, Hormel Foods, Sears, Abercrombie & Fitch, Autodesk, Gap, Marvell, Ross Stores, Aeropostale, Pandora
FRIDAY: New home sales; Earnings from Ann, Foot Locker
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