Stocks Post Loss on Greece, S&P at 3-Month Low

Stocks faded in the final hour of trading Tuesday to finish lower following news that Greek depositors withdrew 700 million euros from the nation's banking system and after Greece's leaders failed to agree on a coalition government.

The S&P 500 closed at 3-month lows, while the Dow logged its ninth loss in the last 10 sessions. Major averages are on pace for their biggest monthly losses since last September.

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According to a transcript, Greek depositors recently withdrew 700 million eurosfrom the nation's local banks, said President Karolos Papoulias, though the exact timing of the transfer was unclear.

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"I think people need to prepare for the eventual removal of Greece from the EU and investors are getting ahead of that before they're forced to," said Matthew McCormick, vice president and portfolio manager at Bahl & Gaynor Investment Counsel on CNBC's "Closing Bell." "It's a political market and an event-driven market."

The Dow Jones Industrial Average slipped 63.35 points, or 0.50 percent, to close at 12,632.00, led by Hewlett-Packard and Home Depot .

The S&P 500 declined 7.69 points, or 0.57 percent, to end at 1,330.66. The Nasdaq erased 8.82 points, or 0.30 percent, to finish at 2,893.76.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, briefly spiked above 22.

All 10 S&P sectors finished in negative territory, led by energy and materials.

Earlier, Greek politicians failed to form a coalition governmentduring their final talks, pushing the Athens Composite Index to a new 22-year low. A caretaker government is likely to be formed pending a new election next month. The euro fell below $1.28following the announcement and European closed at new 2012 lows.

“The fundamental structural issues in Europe are still there and they’re not going to go away…they’ll continue to kick the can down the road because they’re only doing just enough to get by,” said Matt Lloyd, chief investment strategist at Advisors Asset Management.

Meanwhile, German GDP grew 0.5 percent in the first quarter as exports helped the economy bounce back from a contraction in the previous quarter.

“But two things that will change my attitude about this market is if we see a depression in Europe and a hard-landing in China,” he cautioned.

While Lloyd expects volatility to continue, he says investors should take advantage of the dips. In particular, he likes techs, consumer discretionary and some financials including JPMorgan.

JPMorgan shares gained, after being punished in the last few sessions following the bank's disclosure of a $2 billion trading loss. Meanwhile, CEO Jamie Dimon won a shareholder endorsement of his pay packageand was above to keep his post as chairman of the board.

Chesapeake Energy tumbled after the natural gas producer said it will increase its borrowing to $4 billion as it faces a liquidity crunch. In addition, Standard & Poor's cut its rating on the firm to "BB-" from "BB," one notch lower into "junk" status.

On the economic front, homebuilder sentiment jumped to 29 in May from 24 in April, according to the National Association of Home Builders/Wells Fargo Housing Market index, beating expectations for 26 and hitting a 5-year high. Major homebuilders including KBHome , DRHorton and Lennar rallied.

Among earnings, Home Depot slumped after the Dow component posted weaker-than-expected sales.

Groupon surged, adding to the previous session's sharp rally, after the daily-deal site reported quarterly results that beat Wall Street's expectations.

TJX rallied to lead the S&P 500 gainers after the parent company of T.J. Maxx posted better-than-expected earnings and boosted its full-year guidance. Meanwhile, Saks fell after the upscale department-store chain warned that gross margin will fall in the current quarter.

Retailer JCPenney is scheduled to post earnings after the bell.

Avon Products tumbled after Cotywithdrew its $10.7 billion takeover bid for the cosmetics company, saying Avon had missed its deadline to begin discussions.

Facebook increased its IPO range to raise more than $12 billion, valuing the social-network giant at roughly $104 billion. The firm is scheduled to price its shares on Thursday and begin trading on Friday.

Also on the economic front, Empire State manufacturing index rebounded in May, according to the New York Federal Reserve.

Consumer prices were flat in April, in line with economists' expectations, while retail sales edged up slightly as the boost from an unusually warm winter faded. And business inventories gained slightly to a record $1.58 trillion, according to the Commerce Department.

—By CNBC’s JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

Coming Up This Week:

WEDNESDAY: Weekly mortgage apps, housing starts, industrial production, oil inventories, FOMC minutes, AIG shareholders mtg, Southwest Air shareholders mtg; Earnings from Target, Abercrombie & Fitch, Deere, Staples, Limited Brands
THURSDAY: Jobless claims, Philadelphia Fed survey, e-commerce retail sales, leading indicators, Facebook pricing, Home Depot shareholders mtg, Intel shareholders mtg; Earnings from Wal-Mart, Dollar Tree, Ross Stores, Aeropostale, Gap, Marvell Tech
FRIDAY: Facebook begins trading, JCPenney shareholders mtg, G8 summit begins; Earnings from Ann

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