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U.S. stocks closed lower on Wednesday, reversing a positive open, as investors weighed higher bond yields and oil prices ahead of Friday's important jobs report. (Tweet This)
"Some of the smart money players are hedging their bets for a weaker-than-expected employment report," said Lance Roberts, general partner at STA Wealth Management.
Ahead of the Bureau of Labor Statistics data, the ADP Employment Report showed 169,000 jobs were created in April, below analyst expectations of a modest rise to 200,000.
"In the poor labor report and the generally downbeat earnings and economic reports for the first quarter, investors aren't as sure," said Bruce McCain, chief investment strategist at Key Private Bank. "They're not pulling out but just pausing."
In other economic news, unit labor costs for the first quarter rose 5 percent but productivity fell 1.9 percent, a touch more than the expected 1.8 percent decline. The report is central to the Federal Reserve's assessment of underlying price pressures.
"That's not a good combination—productivity low and unit labor costs high," said Peter Cardillo, chief market economist at Rockwell Global Capital. That could "increase inflation down the road."
U.S. equities followed European stocks lower on currency and bond market moves. The U.S. dollar traded more than 1 percent lower against major world currencies, with the euro topping $1.13 for the first time since the end of February
"The focus is waiting for the employment numbers, where global markets are trading, and the impact on stocks and bonds given valuations," said David O'Malley, CEO of Penn Mutual Asset Management. Yellen is "really raising those questions that valuations are pretty full. I agree with that."
Fed Chair Janet Yellen said on Wednesday morning in a conversation with IMF Managing Director Christine Lagarde that equity valuations are generally quite high.
"More volatility is the order of the day," said Michael Baele, managing director for private client research at U.S. Bank. "The futures did look pretty good. Yellen's comments probably had a pretty good impact."
Stocks sold off sharply following Yellen's remarks and continued to hold lower.
In the afternoon, Atlanta Federal Reserve bank president Dennis Lockhart said he is hopeful growth will pick up but needs more evidence, particularly from consumer spending.
The Dow Jones industrial average recovered losses after falling nearly 200 points to briefly fall into negative territory for the year. Earlier, the index opened up more than 85 points. All the major indices turned negative after a positive open. The S&P 500 recouped losses to close at 2,080, after falling past its April 30 lows of around 2,079.
The Nasdaq also declined, briefly falling 1 percent.
"Today we're seeing some anxiety over whether or not job growth will rebound in April," said Ben Garber, capital markets economist at Moody's Analytics. "Janet Yellen's warnings on valuation were not productive in terms of spurring confidence in the market."
However, traders and analysts noted that the selloff in the bond market had a greater impact than the Fed speakers.
"I think people should learn not to listen to (Yellen) on certain things. one of these things is stock valuations. While I think she's right, her commenting on stock valuations doesn't mean anything. She's not going to react to them with policy," said Peter Boockvar, chief market analyst at The Lindsey Group.
Earlier, he said that "it's all about bonds today, rising interest rates, rising commodity prices,"
Longer-term U.S. Treasury yields recovered morning losses to trade higher. The German 10-year bund yield advanced to near 0.59 percent.
Read MoreShould you dump your bonds?
Yields on the 10-year U.S. Treasury hit a high of 2.25 percent on Wednesday, with the 30-year yield at 2.99 percent.
"I think it's a matter of concern if they move too high too fast," said Stephen Freedman, CIO head of U.S. thematic and sustainable investing strategy at UBS Wealth Management Americas. "But the adjustment right now is not something I would consider a problem."
He expects the 10-year yield to rise to 2.4 percent in the next 12 months.
STA's Roberts doesn't expect rates to go much higher. "This pop up in interest rates is simply a shift to the top of a long-term downward trend," he said.
"The most important thing to me is what's causing people to sell bonds," said Art Hogan, chief market strategist at Wunderlich Securities. "The 10-year moving higher (adds to) the picture the global economy is improving and that's going to factor itself into the market at some point."
Traders also noted another day of large corporate issuance as investors made room in their portfolios and hedged.
Apple, rated Aa1/AA+, announced on Wednesday a to finance the repurchase of stock and dividends.
Hogan also noted gains in oil prices, up more than 30 percent from their lows, as a market driver.
Oil prices pared gains slightly after an earlier rise on EIA inventory data that showed a decline in crude stockpiles but steady production. The commodity continued a month-long rally to highs for the year that has been supported by a weaker dollar and a disruption to crude exports from Libya.
Crude oil futures settled up 53 cents, or 0.88 percent, at $60.93 a barrel on the New York Mercantile Exchange.
The rise in Treasury yields hurt weekly mortgage applications, with total volume falling 4.6 percent on a seasonally adjusted basis for the week ended May 1, according to the Mortgage Bankers Association (MBA).
In the Greece debt talks, European lenders on Wednesday dashed hopes for a quick cash-for-reforms deal in the coming days, leaving Athens in an increasingly desperate financial position ahead of a major debt payment next week, Reuters said.
Earlier, stock index futures indicated a higher open, holding gains after mixed morning data.
U.S. stocks closed about 1 percent lower on Tuesday as investors eyed higher bond yields, mixed domestic data and renewed concerns over Greece. The tech-heavy Nasdaq under-performed, falling about 1.5 percent to close below 5,000.
The closed down 9.31 points, or 0.45 percent, at 2,080.15, with telecommunications leading 8 sectors lower and consumer staples the only advancer. Materials closed flat after gaining for most of the day.
The Nasdaq closed down 19.68 points, or 0.40 percent, at 4,919.64.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 15.
About two stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 823 million and a composite volume of nearly 3.8 billion in the close.
Gold futures settled down $2.90 at $1,190.30 an ounce.
In corporate news, Cablevision closed up 2.2 percent after spiking more than 6 percent on CEO James Dolan's comments that he wants to consolidate the New York market. Later, he said on CNBC that he would talk to Time Warner Cable.
Major earnings out on Wednesday included SodaStream, Wendy's, GlaxoSmithKline before market open. Activision Blizzard, 21st Century Fox, Tesla Motors, Whole Foods, and Zynga all report after the bell.
GlaxoSmithKline closed up 0.9 percent after the company reported revenue in line with estimates, but earnings short of forecasts. Glaxo had better than expected results for vaccines and consumer health care, but pharmaceuticals were a drag on profits.
Wendy's closed up 7.2 percent after reporting earnings of an adjusted 6 cents per share for its latest quarter, one cent above estimates, though revenue was below forecasts. The fast food chain also announced plans to sell its bakery operations during this quarter, and will refinance its existing debt.
Mylan closed down 2.5 percent after reporting earnings and an increase in its bid for Perrigo to $34.10 billion. Earnings per share were one cent above estimates, while revenue missed, hurt by the strong dollar. Activity in Mylan's stock has been driven recently by a three-way takeover battle in which it is trying to buy Perrigo while fending off a takeover bid from Teva.
News Corp. closed down 6.4 percent after the firm missed estimates by a penny with adjusted quarterly profit of five cents per share, with revenue essentially in line. The Wall Street Journal owner was hurt by foreign currency issues as well as a drop in newspaper ad sales.
American Express closed up 0.01 percent despite an upgrade to "outperform" from "market perform" at Bernstein, which said the company's risk/reward is "dramatically skewed" to the upside.
Wednesday also marks the fifth anniversary of the 'flash crash' that sent the Dow Jones industrial average briefly down nearly 1,000 points and remains under investigation.
—Reuters and CNBC's Peter Schacknow contributed to this report.
On tap this week:
Earnings: 21st Century Fox, MetLife, Activision Blizzard, CF Industries, Keurig Green Mountain, Marathon Oil, Tesla Motors, Transocean, TripAdvisor, Whole Foods, Zynga
Earnings: Alibaba, Orbiz, Time Inc, CBS, Monster Beverage, Fortress Investment, SeaWorld, Regeneron, Siemens, Apache, ArcelorMittal, BTGroup, ING Group, Alcatel-Lucent, Norwegian Cruise Line, Nuance Communications, Nvidia, Molson Coors, Apollo Global Management, Elizabeth Arden, Cyber ArkSoftware, Tesoro, Teradata
8:30 a.m.: Weekly jobless claims
8:30 a.m.: PPI
Earnings: Toyota, JD.com, BioCryst Pharma, Liberty Media, AOL, Health Care Reit, NRG Energy, Sirona Dental Systems
8:30 a.m.: Employment report
10:00 a.m.: Wholesale trade
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