Stocks ended lower for a second straight session in light volume as the glow from housing starts faded and banks skidded.
Stocks started the day higher after an unexpected jump in housing starts but there wasn't a lot of conviction in the market's climb and by noon, major indexes were in negative territory.
The Dow Jones Industrial Average dropped 107.46, or 1.3 percent, to close at 8,504.67, adding to the 2.1-percent drop from the previous session. The S&P 500 shed 1.3 percent and the Nasdaq lost 1.1 percent.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose another 5 percent to finish at 32.68.
Traders noted that there seems to be a change in sentimentafoot in the market, as evident by Best Buy the 7.3-percent drop in the stock despite the fact that the electronics retailer beat expectations with a 15-percent rise in profits.
A few weeks ago, any beat — even on a decline in earnings — would've been cause for celebration.
That spurred talk that this may be the beginning of a correction following a 35 percent run in the past three months.
"The market is ahead of itself. It is effectively overstating the strength of the recovery that's coming in the third or fourth quarter," Hugh Johnson of Johnson Illington Advisors said on CNBC. "So a 5- to 15-percent correctionor decline in stock prices from current levels is what I would guess."
>> It's No Bull: Bears Are Still in Control
This came after the worst day for stocks in a month. Monday's 187-point loss for the Dow was the first time in 10 sessions the Industrial Average had chalked up a triple-digit move in either direction — earlier this year, triple-digit moves were the norm rather than the exception.
Giving the market a boost out of the gate was a report that showed housing starts jumped 17.2 percentin May, mostly due to a surge in multifamily construction, after sliding 12.9 percent in April. New building permits, a gauge of future building activity, rose 4 percent, the biggest gain since last June.
And inflation remained pretty tame: Producer prices climbed 0.2 percent in May, while core prices, which exclude the volatile food and energy components, slipped 0.1 percent. Economists had expected a much sharper 0.6-percent increase amid rising energy prices.
But industrial production fell 1.1 percent in May, after a 0.7-percent drop in April, and capacity utilization fell to 68.3 percent.
Bank of America was the biggest percentage decliner on the Dow, followed by Disney and Home Depot .
There were only two Dow components that finished higher: Microsoft and Pfizer .
>> Scoreboard: Check Where All 30 Dow Stocks Ended
Banks skidded following news that the Obama administration plans to create a Consumer Financial Protection Agencyto help protect consumers' credit, savings and other banking transactions.
The news emerged from an anonymous administration official because the agency hasn't been offiically announced yet.
Fifth Third Bank and Citigroup wereamong the sector's biggest decliners. JPMorgan and Wells Fargo also slipped.
Retail stocks took a hit, with department stores off about 5 percent and specialty stores down 2 to 3 percent.
Tech stocks ended mostly lower, with chips down 2 to 3 percent.
Research In Motion ended slightly lower despite the fact that T.Weisel raised its price target on the stock to $92 from $85. Analysts expect to see solid numbers from the Canadian company, which makes the BlackBerry, when it reports earnings after the bell Thursday.
"RIM has shown throughout the recession continued strong subscriber growth, continued growth in market share and continued growth — more importantly — on both the enterprise as well as the consumer side," independent technology analyst Carmi Levy told Reuters.
And RIM has a new device coming out later this summer, the BlackBerry Tour, which aims to find the middle ground of personal and corporate use.
Rivals Apple and Palm rose.
Microsoft squeaked out a gain after Jefferies raised its target on the stock to $26 from $22 and backed its "buy" rating on the stock ahead of the release of the new Windows.
Yahoo fell 2.7 percent amid speculation that, if Microsoft's Bing proves to be worthy rival to Google's — well, Google — then it won't have a need for Yahoo's search technology.
General Motors shares rose 5.6 percent following news the company is selling its Saab unit to a Swedish carmaker.
Duncan Energy Partners fell 1.6 percent after the company said Monday it is offering 8 million common shares representing limited partner interests.
Trading volume was light, with about 1.18 billion shares changing hands on the New York Stock Exchange. Decliners outpaced advancers more than 2 to 1.
This Week:
TUESDAY: Earnings from Adobe after the bell
WEDNESDAY: Bernanke speaks; weekly mortgage applications; CPI; crude inventories; Obama to outline plans for financial reform; Earnings from FedEx
THURSDAY: Weekly jobless claims; leading indicators; Philly Fed index; Earnings from Research In Motion
FRIDAY: Quadruple witching
Send comments to cindy.perman@nbcuni.com.
