Stocks closed lower Wednesday following a handful of weak earnings results in the financial sector and strong results from tech giants IBM and Apple, although the iPad maker's shares slipped in afternoon trading.
The Dow Jones Industrial Average fell 12.64 points, or 0.1 percent, to close at 11,825.29, the first drop for the blue-chip index in three days, a day after closing at a new 2 1/2-year high.
Bank of America, American Express and JPMorgan fell, while IBM and McDonald's and gained.
The S&P 500 fell 13.10 points, or 1 percent, to close at 1,281.92, while the Nasdaq fell 40.49 points, or 1.5 percent, to close at 2,725.36. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 17.
Most key S&P sectors declined, led by materials, financials and energy.
At mid-afternoon, tech stocks began to sell off more, as even Apple, which posted a surge in profits that beat Wall Street expectations, turned negative, as investors took profits, according to Dave Rovelli, director of trading at Cannacord Gennuity. Apple hit a high a for the day at 9:31 a.m., and inched lower ever since, until turning negative after 2 p.m.
"We’ve come so far so fast, this is just normal, nothing to write home about," Rovelli told CNBC.com, adding that he wouldn't be surprised to see profit taking continue for two or three days.
Normally, huge earnings results from IBM and Apple would have sent stocks soaring, but disappointing results from Citigroup on Tuesday and Goldman Sachs on Wednesday became a "reality check" for traders, since financials had been leading the market. "Everyone was counting on banks to lead us to a new high," Rovelli said.
More earnings results were expected from major financials later this week, including Morgan Stanley on Thursday and Bank of America on Friday.
But the market may also be reacting to a report by Bloomberg that Tom DeMark, president of Market Studies, is predicting an 11 percent drop in the S&P 500 that would begin after the index reaches a market top within a week.
Financials may just be taking a breather after surging by double-digits since early December.
That’s particularly true for regional bank stocks. From Nov. 30 through Jan. 18, the KBW Regional Bank Index has soared 22.4 percent, compared with a 20.8 percent gain in the more general KBW Bank Index. The S&P 500 Index gained 9.7 percent in that time frame.
Whether bank stocks keep rising from here, as fourth quarter earnings results are steadily released, will depend on the overall strength of the economy, Christopher Nolan, regional banking analyst at CRT Capital told CNBC.com.
“If the economy sees slow steady progress, you’ll see financials do quite well,” Nolan says.
A slew of regional banks begin reporting earnings this week, including PNC Financial on Thursday, SunTrust on Friday and Citi National , Zions Bancorp and KeyCorp next week.
On Wednesday, Goldman Sachs fell more than 4 percent after the banking giant posted a 53 percent decline in quarterly profit, reflecting the difficulty Wall Street had in generating trading revenue in a volatile interest-rate environment.
The fact Goldman's sales fell short indicates "they are still trying to figure out a post-recession world also, and that has everybody scratching their heads," Kinahan said.
Rival Wells Fargo also declined, even after the bank hit estimates square on, thanks to double-digit revenue growth.
Bank of New York Mellon and Northern Trust both fell after the regional banks said their quarterly profits slipped.
Bank stocks were also under pressure a day earlier in the wake of a disappointing earnings report from Citigroup, led by a sharp drop in bond-trading revenue. Meanwhile,Citigroup named John Havens, the head of investment banking, to be president and chief operating officer.
Meanwhile, American Express slipped after the credit card company said it will close customer service centers and cut 550 jobs as it helps more people on the Internet, a move that will cost the company $74 million after taxes.