Stocks retreated Tuesday, led by consumer discretionary and materials, amid disappointment in the latest round of earnings and economic reports.
But stocks ended off their earlier lows amid gains in health care and energy after strong earnings results from Pfizer.
The Dow Jones Industrial Average fell 38 points, or 0.4 percent, to close at 10,636.38, led by Procter & Gamble.
The S&P 500and Nasdaqeach finished down about half a percent. The CBOE volatility index, widely considered the best gauge of fear in the market, was at nearly 23 at the closing bell.
Analysts said the market was due for a pullback after Monday's 2-percent gainthat followed a nearly 7-percent jump in July — the best month in a year.
“The market is still a bit schizophrenic," said Liz Ann Sonders, chief investment strategist at Charles Schwab, adding that while the latest economic data haven't been “fantastic,” they have been sufficient enough to temporarily set the double-dip concerns aside.
Procter & Gamble fell 3.4 percent after the maker of Tide and Pampers reported a sharp drop in its net income, though sales rose and the firm projected sales growth for the year ahead.
And Dow Chemical tumbled 10 percent after the chemical company reported a smaller-than-expected profitas three plant outages overshadowed an increase in sales across the board.
Meanwhile, Pfizer jumped more than 5 percent after the drug maker beat earnings and revenue expectations, helped by cost savings from its merger with Wyeth. The company alsosaid its full-year earnings will be at the high end of its expected range.
Homebuilder D.R. Horton swung to a profit but fell short of forecasts, while handbag maker Coachtopped expectations, helped by price cuts.
And Sykes Enterprises dropped another 22 percent after the business-process outsourcing firm missed its earnings target and slashed its full-year outlook.
Shares of Anadarko , CBS and ElectronicArts were lower ahead of their earnings reports after the bell.
Energy stocks were among the sector leaders with ExxonMobil and Chevron up more than 1 percent each, as oil prices hit a new three-month high, settling at $82.55 a barrel.
BP shares rose 1.5 percent after the company prepared to finally seal its ruptured oil wellin the Gulf of Mexico. New government figures showed that almost 5 million barrels of oil leakedbefore the well was provisionally capped in mid-July.
On Monday, US regulators were investigating BP for possible insider trading related to the oil spill.
Meanwhile, the tech sector was largely mixed.
Research In Motion finished lower as analysts were disappointed that the company's new touch-screen BlackBerrycalled the "Torch" (though it will still have a pull-out keyboard) didn't really advance the smartphone ball.
Hewlett-Packard shares fell after the tech giant agreed to settle a Justice Department probe. The settlement is expected to reduce the firm's third-quarter earnings by 2 cents a share.
Shares of Applied Materials fell 1.6 percent after UBS downgraded the semiconductor-equipment firm to "neutral" from "buy."
Meanwhile, Amazon shares rose 2 percent following news that several of the company's new Kindle models are temporarily sold out, which raised speculation that Apple's iPad may not dominate the e-reader market.
Ford shares fell 1.9 percent after the auto maker reported a 0.7 percent increase in US auto sales in July, less than the expected double-digit percentage increase expected.
Overall, most auto makers reported increases in sales from a year earlier but many fell short of expectations.
Meanwhile, shares of rival Toyota fell ahead of earnings from the auto maker, due out Wednesday.
Economic news also added to the market's sour mood: Consumer spending and income were flat in June, while the personal savings rate hit its highest level in a year. Pending ending-home sales fell 2.6 percentand factory orders dropped 1.2 percent, both in June.
The market was all abuzz about the Fed this morning after an article on the front page of the Wall Street Journal suggested that policy makers may talk about buying more mortgage or Treasury bonds when they meet next week, instead of shrinking the Fed's portfolio, as expected.
If the Fed continues to print money, it will create a "final crisis" that "wipes out the whole system," Marc Faber, also known as "Dr. Doom" because he writes the "Gloom, Boom and Doom Report," told CNBC.
Gold-mining stocks advanced following news that Kinross Gold will buy the rest of Red Back Mining that it doesn't already own for $7 billion.
Gold rose to $1,185.20 an ounceand the dollar fell to a 3-month low against the euro following solid euro-zone data and the perception that the U.S. growth outlook is deteriorating.
Meanwhile, wheat prices are rising at their fastest pace in over 50 years, which suggests that agriculture shortages are coming, investor Jim Rogers said.
And Xstrata announced plans to invest $5 billion in new mines, establishing its strategy of organic growth not acquisitions, after reporting its earnings doubled in the first half.
Elsewhere on the M&A front, Sanofi-Aventis and Genzyme are formally in talks after Sanofi sent an offer valued at $18.4 billion, or $69 a share, according to sources close to the situation.
Volume was light, with about 1 billion shares changing hands on the New York Stock Exchange. Decliners outpaced advancers, roughly 3 to 2.
TUESDAY: Earnings from Anadarko, CBS and Electronic Arts after the bell
WEDNESDAY: Weekly mortgage applications; challenger job-cut report; ADP employment report; ISM services index; weekly oil inventories; AmEx analyst meeting; Earnings from Toyota, Time Warner and Allstate
THURSDAY: July chain-store sales; Fed hearing on new mortgage regulations; BoE announcement; ECB announcement; weekly jobless claims
FRIDAY: Fed hearing on new bank regulations; July jobs report; consumer credit
More From CNBC.com: