Stocks ended lower Wednesday, with the Dow and S&P closing in the red for the fifth-straight day, as jitters over budget talks in Washington continued to weigh on markets.
Major averages are on track for their first losing week in four.
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"The market is vulnerable to negative news. You have the market watching dysfunction in Washington in real-time, and it's been choppy and down five days in a row, and then you introduce a new catalyst with Wal-Mart's and it represents a large part of the consumer," said Art Hogan, managing director of Lazard Capital Markets.
Major U.S. Indexes
The Dow Jones Industrial Average slumped 61.33 points to end at 15,273.26, dragged by Wal-Mart. The retail giant's shares took a sharp leg lower in midday trading after the firm said it is cutting orders amid rising inventories, according to a Bloomberg report. But shares recovered after Wal-Mart's spokesman told CNBC that the report is "misleading," saying the company has hundreds of categories and that inventory levels change all the time.
Other major big-box retailers and discount chains including Target, Costco, Dollar General and Dollar Tree turned lower following the report.
The dipped 4.65 points to finish at 1,692.77. The Nasdaq slid 7.16 points to close at 3,761.10. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended near 14.
Earlier, the Russell 2000 small-cap index climbed to hit a record high for the second-consecutive session.
Among key S&P sectors, financials rose, while health care held losses.
Investors seemed reluctant to jump in amid concerns that Congress will be unable to solve the country's debt ceiling problems, which could lead the government to default on its debt next month. Investors also considered the possibility that the U.S. government might shut down on Oct. 1, which could hit economic growth.
(Read more: Here's who might win if DC shuts down)
On the economic front, new home sales gained 7.9 percent in August to an annual rate of 421,000 units, but held near their lowest levels this year, according to the Commerce Department. The pace of sales was in line with analysts' expectations according to Reuters.
Weekly mortgage applications gained for a second week as interest rates declined, according to the Mortgage Bankers Association.
And durable goods orders edged up 0.1 percent in August, according to the Commerce Department.
JC Penney plunged nearly 15 percent, dropping to their lowest in nearly 13 years, after Goldman Sachs said in a research note it expects sales at the retail chain to improve more slowly than expected.
Amazon.com nudged higher after the online retailer said it plans to unveil two new versions of its Kindle e-reader.
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Mako skyrocketed more than 80 percent after Stryker said it will acquire the medical device maker for about $1.65 billion.
Among earnings, AutoZone ticked higher after the auto parts retailer posted earnings and revenue that exceeded Wall Street expectations.
Bed Bath & Beyond and Jabil Circuit are among companies slated to post results after the closing bell.
The government sold $35 billion in 5-year notes at a high yield of 1.436 percent. The bid-to-cover ratio, an indicator of demand, was 2.67, which compares to a recent average of 2.70.
In global news, President Barack Obama cautiously welcomed overtures from Iran's new president Hassan Rouhani on Tuesday as the basis fora possible nuclear deal and rapprochement between the countries. The leaders did not have time to meet in person at the ongoing U.N. General Assembly, however.
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
On Tap This Week:
THURSDAY: GDP, jobless claims, corporate profits, pending home sales, natural gas inventories, Fed Kocherlakota speaks, 7-yr note auction, Fed balance sheet/money supply, Fed's George speaks, weekly rail numbers; Earnings from Nike, Accenture
FRIDAY: Fed's Evans speaks, personal income & outlays, consumer sentiment, Fed's Dudley speaks, farm prices; Earnings from BlackBerry
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