U.S. stocks closed lower on Tuesday as investors eyed further declines in Apple's stock and slight recovery in oil prices, amid continued focus on the timing of a rate hike. (Tweet This)
"What we got today was reaffirmation that the Fed would like to raise rates this year, certainly not far from consensus," said Art Hogan, chief market strategist at Wunderlich Securities. He noted that this week also culminates with a jobs report.
"Apple's still the story," he said.
The major averages briefly extended losses after Atlanta Fed President Dennis Lockhart, a voting member, told the Wall Street Journal that the economy appears ready for a rate hike in September. Analysts noted slight surprise at the unscheduled remarks. Yields rose and the dollar gained against world currencies.
"There's no data point that's overwhelmingly bullish," said Adam Sarhan, CEO of Sarhan Capital. "To me it doesn't make any sense that if the Fed had a meeting today they would raise rates because demand is declining around the world."
The energy sector gave up early gains to close half a percent lower as oil attempted to recover recent losses, while Apple closed down 3.2 percent as the greatest blue chip decliner.
The stock "broke through a couple of technical support levels and that got a lot of people nervous," said JJ Kinahan, chief strategist at TD Ameritrade. He noted the stock has a major psychological effect on investors since it was the top held and traded stock at TD Ameritrade last year.
"Overall there's a lot of mixed signals and I think people are reluctant to put out anything huge ahead of employment," Kinahan said.
The iPhone maker's stock is in correction territory after plunging below its 200-day moving average on Monday. Trade volume was about 62 million in late morning trade, surpassing its 30-day average volume of 47 million shares. Shares of suppliers Skyworks, Cirrus, Vishay and Avago all plunged in sympathy.
"It's an enormous stock," said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. "You haven't seen anything impact the stock (market) as quickly since IBM in 1982."
He pointed out that without Apple, the information technology sector would be up 0.86 percent rather than more than 1.5 percent lower since the stock hit a high on Feb. 23, 2015.
"Apple on the way up brings the whole market up, and on the way down everybody wonders, 'what does it mean,' because it encompasses all of our hopes, all of our fears," said Quincy Krosby, market strategist at Prudential Financial.
Besides technical pressure, analysts cited concerns about Apple's ability to sustain market leadership and negative impacts from China.
Commodities remained in focus, with brent struggling to hold above $50 a barrel. Crude oil settled up 57 cents at $45.74 a barrel. The energy sector was one of the greatest declining sectors in the S&P 500.
Energy stocks fell 2 percent Monday, following a more than 3.5 percent drop in West Texas Intermediate crude futures and 4.5 percent decline in Brent futures, which fell below $50 per barrel for the first time since the end of January.
Oil output by the Organization of the Petroleum Exporting Countries (OPEC) reached the highest monthly level in recent history in July, and production could rise further if Iran achieves a plan to raise output by 500,000 barrels per day (bpd) as soon as sanctions are lifted.
"Markets have realized that growth is slowing, even outside of the energy sector," said Nick Raich, CEO of The Earnings Scout.
"It seems like the move (in oil) has caught a lot of people off guard to see it come down so fast," he said.
On the data front, showed an increase of 1.8 percent, mostly in-line with expectations.
The Atlanta Fed's Dennis Lockhart, a voting member, said in a Wall Street Journal report that the economy appears ready for an initial rate hike in September.
The major averages briefly extended losses following the report. The U.S. dollar gained about half a percent, with the euro lower below $1.09. Treasury yields extended gains, with the 10-year yield rising as high as 2.23 percent and the at 0.74 percent.
Lawrence McDonald, head of the U.S. Macro Strategies group at Société Générale, said yields were reacting slightly to Lockhart's comments but remained within a recent range.
"Rates backed up on comments (from Fed Chair Janet) Yellen," he said. "And this as people have seen the data. The data has been extremely dovish. The data has been overpowering any of the comments."
On Wednesday, investors will watch the ADP employment report, which comes ahead of the nonfarm payrolls report on Friday.
"The stock market seems to be biding it's time for what is looking like an important employment report this week," said Michael Arone, chief investment strategist for State Street Global Advisors' U.S. Intermediary Business. He expects creation of slightly more than 200,000 jobs, a touch lower than the 225,000 consensus.
"I think as this relates to the Federal Reserve, the Federal Reserve is quite comfortable with improvement we've been having in labor," he said, noting that the stock market will likely have a reaction.
In corporate news, Regeneron Pharmaceuticals jumped 4.8 percent to an all-time high after the soundly topping estimates on both the top and bottom line. The firm raised its U.S. sales growth forecast for its macular degeneration drug Eyelea to 45 percent to 50 percent from the prior 30 percent to 35 percent.
Shares of Twitter closed up 0.2 percent but closed below $30 for the second day in a row after ending under the psychologically key level for the first time on Monday amid growth concerns.
"To the extent that the advance has narrowed in terms of leadership, in terms of fewer and fewer stocks, there's been a bias to buy ahead of earnings reports," said Marc Chaikin, CEO of Chaikin Analytics.
In Europe, equities closed slightly lower as low commodity prices and energy stocks dented sentiment.
In its second day of trading after reopening, the Greek stock market opened down over 4 percent, but pared losses to end roughly 1.2 percent lower.
The closed down 4.72 points, or 0.22 percent, at 2,093.32, with utilities leading eight sectors lower and materials and consumer discretionary the only advancers.
The Nasdaq closed down 9.84 points, or 0.19 percent, at 5,105.55.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 13.
About eight stocks declined for every seven advancers on the New York Stock Exchange, with an exchange volume of 817 million and a composite volume of 3.5 billion in the close.
Gold futures for December delivery settled up 41.30 at $1,090.70 an ounce.
–CNBC's Peter Schacknow and Jenny Cosgrave contributed to this report.
On tap this week:
Earnings: Disney, Activision Blizzard, AXA, Aetna, CVS Health, Pioneer Natural Resources, First Solar, Zillow, Dreamworks Animation, Toyota, Archer Daniels Midland, Coach, Kellogg, Regeneron, Norwegian Cruise, Beazer Homes, Time Inc, Sprint, Charter Communications.
Earnings: Time Warner, SodaStream, Spark Therapeutics, Wendy's, CBS, Keurig Green Mountain, Weight Watchers, Zulilly, Tesla Motors, Fitbit, Virtu Financial, Kate Spade, Lumber Liquidators, Discovery Communications, Ralph Lauren, Chesapeake Energy, Liberty Media, Motorola Solutions.
08:15 a.m.: ADP employment
08:30 a.m.: International trade
10:00 a.m.: ISM nonmanufacturing
Earnings: Viacom, Mylan Labs, Michael Kors, AMC Networks, Duke Energy, Molson Brewing, Viacom, 3-D Systems, Wingstop, Zynga, Lions Gate, SeaWorld, NY Times, OM Asset Management, Generac, Becton Dickinson, Con Ed, EOG Resources, Mohawk, Shutterstock, Clovis Oncology, TrueCar.
08:30 a.m.: Initial claims
Earnings: Berkshire Hathaway, Allianz, Hershey, BioCryst Phama, Cablevision, Groupon, Brookfield Asset Management, Sirona
08:30 a.m.: Employment report
03:00 p.m.: Consumer sentiment
More From CNBC.com: