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Stocks mixed, with Nasdaq hit by valuation worry

U.S. stocks fluctuated on Tuesday, with investors measuring upbeat earnings from the banking sector against concern from the Federal Reserve that valuations on small-cap and high-flying names might be "stretched."

JPMorgan Chase and Goldman Sachs Group climbed after posting better-than-expected quarterly results. Facebook and Yahoo fell after the Fed, in its monetary report, called valuations stretched for smaller social media and biotechnology stocks. Lorillard declined after Reynolds American said it would purchase its rival cigarette maker for about $25 billion.

Read MoreFed slaps stocks with unusually targeted comments on valuation froth

We have "echoes of irrational exuberance, but in an entirely different context," said Art Hogan, chief market strategist at Wunderlich Securities, referring to Yellen's comments about biotech and social media stocks, and relating them to a phrase used by then-Fed Chairman Alan Greenspan in the 1990s during the dot-com bubble.

Read MoreBiotech, social stocks weak after Yellen warning

In semi-annual testimony before the Senate Banking Committee, Fed chair Janet Yellen said the central bank's monetary stimulus was still necessary, given "significant slack" in the labor market and that inflation remained under the Fed's target.

Read MoreYellen: No 'magical formula' for rate inceases

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After jumping 64 points to another intraday record, the Dow Jones Industrial Average wavered between gains and losses before ending little changed, up 5.26 points at 17,060.68.

JPMorgan profit declines as fixed-income trading slides

Health care and consumer staples led declines and financials and telecommunications fared best among the 10 major sectors on the S&P 500, which dropped 3.82 points, or 0.2 percent, to 1,973.28.

The Nasdaq declined 24.03 points, or 0.5 percent, to 4,416.39.

For every share rising, nearly two fell on the New York Stock Exchange, where 731 million shares exchanged hands. Composite volume cleared 3.3 billion.

"The significant pullback in energy prices which has gradually shown up at the pump is going to be a tailwind for the consumer and the economy," said Hogan.

On the New York Mercantile Exchange, oil futures fell below $100 a barrel for the first time since the middle of May, losing 95 cents to settle at $99.96 a barrel. Gold futures erased initial gains, dropping $9.60, or 0.7 percent, to finish at $1,297.10 an ounce.

Read MoreThe reason Yellen's comments sent gold lower

Read MoreTechnician who called gold bust predicts $700 gold

The dollar held steady against the currencies of major U.S. trading partners; the 10-year Treasury yield used to figure mortgage rates and other consumer loans held little changed at 2.549 percent.

Economic reports had a measure of consumer spending rising in June, with core sales - which exclude cars, energy and food costs -- up 0.6 percent after an upwardly revised 0.2 percent in May.

Read MoreDetails of June retail report suggest economy on solid footing

"So far the news has been pretty good," said Peter Cardillo, chief market economist at Rockwell Global Capital, citing earnings from the banking sector, along with data on June retail sales.

"The overall economic picture continues to brighten, with consumer spending up, albeit at a modest pace," said Cardillo.

Other data Tuesday had factory activity in the New York region expanding sharply in July; U.S. import prices rising less than expected in June; and another report showed U.S. business inventories rising in May.

On Monday, stocks climbed, lifting the Dow industrials back above 17,000, as investors welcomed better-than-projected earnings from Citigroup and a round of M&A.

Read MoreStocks end higher on M&A; Dow sets intraday record

Yahoo and Intel report after Tuesday's close.

Trader on the floor of the New York Stock Exchange.
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Trader on the floor of the New York Stock Exchange.

—By CNBC's Kate Gibson

Coming Up This Week:

Wednesday

Earnings: Bank of America, BlackRock, PNC Financial, Northern Trust,US Bancorp, Charles Schwab, Abbott Labs, Yum Brands,eBay,United Rentals, Textron, St. Jude Medical, Taiwan Semiconductor,First Republic Bank, SanDisk

8:30 a.m.: PPI

9:00 a.m.: TIC data

9:15 a.m.: Industrial production

10:00 a.m.: NAHB survey

10:00 a.m.: Fed Chair Yellen before House Financial Services Committee for semiannual testimony

2:00 p.m.: Beige book

Thursday

Earnings: IBM, Google, Morgan Stanley, Blackstone,KeyCorp,AutoNation, Novartis, SAP, Philip Morris, UnitedHealth,Baker Hughes,Capital One, Celanese, Cypress Semi, Sherwin-Williams, Danaher,Canadian Pacific Railway, Seagate Technologies

830 a.m.: Initial claims

8:30 a.m.: Housing starts

10:00 a.m.: Philadelphia Fed survey

Friday

Earnings: General Electric, Honeywell, Kansas City Southern, Bank of NY Mellon, Ericsson, VF Corp, Interpublic

9:55 a.m.: Consumer sentiment

10:00 a.m.: Leading indicators

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