U.S. stocks declined sharply on Tuesday, a day after the Dow industrials and S&P 500 closed near record highs, as American International Group reported a decline in profit and Twitter fell as insiders got their first opportunity to sell since the company's initial public offering.
"We've had an earnings season that's been better than expectations, but not strong enough to get investors terribly excited about the future, and we may be seeing a little hint of a risk-off trade with nervousness over this Ukrainian story, although it doesn't affect the ability of U.S. companies to make money," said Jerry Webman, chief economist at Oppenheimer Funds.
"Good money can be made in a fairly valued market, but to go higher we're going to need some confirmation on earnings and expected earnings," Webman added.
"The primary reason we're down today is we're at all-time highs. If you don't continue to rally, people just start to take profits," said JJ Kinahan, chief strategist for TD Ameritrade.
Shares of AIG fell a day after the insurer in quarterly profit. Office Depot surged after the retailer and said it would close at least 400 stores in the United States over the next two years. Twitter tumbled as nearly 500 million shares of the social media stock from company insiders were poised to hit the market as a lock-up period expires.
"It's one of those occasions where you need to see the pace of growth pick up, and right at this point I don't know where it is coming from. It's hard to be bearish, but it's difficult to be bullish at all-time highs; I'd probably be more inclined to put money on the down side rather than on new highs, at least for the next few weeks," said Andrew Wilkinson, chief market analyst at Interactive Brokers.
"There is a tendency to hit these records and then bounce from them," said Webman.
The U.S. trade deficit shrank in March as exports increased, with the gap narrowing to $40.4 billion from $41.9 billion in February, the Commerce Department reported. After the trade data, JPMorgan took its tracking estimate of real GDP growth in the first quarter down to negative 0.8 percent from negative 0.4 percent.
"Exports in the first quarter were particularly weak, but that's on paper. It doesn't really tell you anything about the underlying health of the economy, as that was when transport was frozen, you couldn't build a house or go to the store. Most of the data points now are telling us the economy is reasonably healthy," said Wilkinson.
Bayer on Tuesday said it would buy Merck's consumer business for $14.2 billion in cash, the latest deal in a spree of activity in the pharmaceutical space.
The dropped 16.94 points, or 0.9 percent, to 1,867.72, with financials hardest hit and energy faring best among its 10 major industry groups.
The Nasdaq shed 57.30 points, or 1.4 percent, to 4,080.76.
After rising to a session high of $604, shares of Apple slid, a day after closing above the $600 level for the first time since October 2012.
"The VIX tells us there is not that great a reason to be concerned. Even if the VIX rallied 10 percent today it would still be under 15," said Kinahan of the CBOE Volatility Index, one measure of investor uncertainty, which rose 3.8 percent to 13.80.
"One day does not make a trend," said Kinahan, who downplayed the notion that investors were selling equities in a panic.
For every share rising, more than two fell on the New York Stock Exchange, where nearly 700 million shares traded. Composite volume approached 3.3 billion.
The 10-year Treasury yield used in figuring mortgage rates and other consumer loans fell 1 basis point to 2.595 percent.
The dollar fell against the currencies of major U.S. trading partners, especially the euro, which rose on data showing a strong European service sector.
"While Germany is still the undisputed locomotive, the real news today lies with the robust reports from Italy and Spain," offered Marc Chandler, global head of currency strategy at Brown Brothers Harriman, referring to better-than-expected reads on the service industries in both countries.
On Monday, stocks climbed as growth in U.S. service industries countered worry over tension in Ukraine and growth in China.
—By CNBC's Kate Gibson
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