U.S. stocks closed lower Wednesday after mixed data, with energy leading decliners and utilities leading. (Tweet This)
"I'm definitely seeing a momentum shift and this market has seemed like a momentum-driven market these few months. If momentum does shift it feels like there's not enough economic foundation and initiatives, what the Fed is going to do. ... This is a pretty good challenge point for the market," said Daniel Deming, managing director at KKM Financial.
Energy closed off worst levels but was still 1.3 percent lower as the greatest S&P 500 laggard.
U.S. crude oil futures clung to gains in the settle to end up 13 cents, or 0.30 percent, at $43.78 a barrel. Earlier, weekly EIA crude inventories showed a rise of 2.8 million barrels.
The Nasdaq composite underperformed, briefly falling 1 percent and closing nearly 9.7 percent below its 52-week intraday high. The Dow Jones industrial average and S&P 500 were less than 4 percent below their 52-week intraday highs.
"Today, honestly, I think a lot of it is technical," said Paul Yook, portfolio manager at BioShares Funds.
The Dow closed about 99.6 points lower, with Goldman Sachs contributing the most to declines. Earlier, the Dow more than halved morning losses of more than 100 points after better-than-expected data on the services sector.
ISM non-manufacturing for April was 55.7, above expectations and rising from March's 54.5 print. The employment index rose to 53.0 from 50.3 the prior month.
"I think you start paying attention to the progress in the economy. This is second-quarter data," said Art Hogan, chief market strategist at Wunderlich Securities, noting the mid-morning data was "good news."
The final April read on Markit services PMI rose to 52.8 from 51.3 in March.
Factory orders rose a more-than-expected 1.1 percent in March.
Barclays' first-quarter GDP tracking estimate rose to 0.9 percent after the factory orders report.
The U.S. dollar index held about 0.3 percent higher, with the euro just below $1.15 and the yen at 106.9 yen against the greenback.
The iShares MSCI Emerging Markets ETF (EEM) closed 1.6 percent lower.
"The dollar's been strong for two days now. Some of it could be linked to the premise the Fed could hike this summer. Two Fed speakers hinted at this," said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie.
"There's also a sense in the market the weakness we saw in the dollar in March was overdone a bit," he said, noting some flight to quality following the release earlier this week of a weaker-than-expected China Caixin manufacturing PMI.
On Tuesday, Atlanta Fed President Dennis Lockhart said in a Reuters report that it's "certainly possible" the Fed could raise rates two more times this year, but uncertainties abound, including the impact on the U.S. economy should Britain vote in June to leave the European Union.
Separately, San Francisco Federal Reserve President John Tuesday he would support a June hike as long as he sees continued progress on the economy, inflation and jobs, according to a Reuters report citing an interview on Bloomberg Radio.
Williams will speak Thursday on CNBC's "Power Lunch."
Neither Lockhart and Williams are voting members of the Federal Open Market Committee this year.
"I think the uncertainty (on the timing of a Fed hike) has increased because we were expecting better U.S. data. The first quarter you could argue was weak because of seasonality," said Athanasios Vamvakidis, head of G10 FX strategy in Europe for Bank of America Merrill Lynch.
Ahead of the highly anticipated nonfarm payrolls report due Friday, the ADP employment report for April missed expectations with a decline from the prior month to 156,000.
"ADP shows the job market has cooled off," said Peter Cardillo, chief market economist at First Standard Financial.
"That could mean one of the significant pillars of the economy is beginning to weaken," he said.
Read MorePacked calendar ahead for US markets
Treasury yields struggled for direction, with the last near 0.73 percent, around its lowest in more than two weeks. The 10-year yield hovered around 1.78 percent after touching its lowest since April 20.
"Rates are reflecting caution following the weak ADP payroll number today. With Japanese markets closed volume has been lower as well. Tone globally has been risk-off and the Fed has put global financial conditions squarely on their radar," Brandon Swensen, co-head, U.S. fixed income, at RBC Global Asset Management (U.S.), said in an email.
In other economic news, the March trade deficit was $40.4 billion. First quarter productivity declined at an annual rate of 1 percent.
Weekly mortgage application volume fell 3.4 percent, according to the Mortgage Bankers Association.
Overseas, European stocks closed about 1 percent lower. Asian equities ended lower, with the Shanghai composite off only 0.05 percent. Japanese markets remained closed for a holiday.
The Dow Jones industrial average closed down 99.65 points, or 0.56 percent, at 17,651.26, with Caterpillar leading decliners and McDonald's the top gainer. The stock hit an all-time high in intraday trade.
The closed down 12.25 points, or 0.59 percent, at 2,051.12, with energy leading seven sectors lower and utilities the top gainer.
The Nasdaq composite closed down 37.58 points, or 0.79 percent, at 4,725.64.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded slightly higher near 16.1.
About three stocks declined for every two advancers on the New York Stock Exchange, with an exchange volume of 1.0 billion and a composite volume of nearly 4.0 billion.
Gold futures for June settled $17.40 lower, at $1,274.40 an ounce.
On tap this week:
Earnings: 21st Century Fox, MetLife, Allstate, Fitbit, Kraft Heinz, Murphy Oil, Tesla Motors, Transocean, Whole Foods, Eldorado Gold, GoDaddy, Weight Watchers, Yamana Gold, Zynga
6:30 p.m. Minneapolis Fed President Neel Kashkari
Earnings: Alibaba, Merck, Chesapeake Energy, Discovery Communications, Kellogg, Regeneron, MGM Resorts, Scripps Networks Interactive, AMC Networks, Avon Products, Fortress Investment, SeaWorld, Time, Activision Blizzard, Cerner, Motorola Solutions, News Corp., Square, Tableau Software, Dreamworks Animation, El Pollo Loco, FireEye, Herbalife, TrueCar, Wingstop, Yelp
7:30 a.m.: Challenger Job-Cut report
8:30 a.m. Initial claims
10:30 a.m.: Natural gas inventories
11:50 a.m. St. Louis Fed President James Bullard
7:15 p.m. Atlanta Fed's Lockhart, Dallas Fed President Rob Kaplan, St. Louis Fed's Bullard, San Francisco Fed's Williams at Hoover Conference
Earnings: ArcelorMittal, Cigna, Willis Towers Watson, Madison Square Garden, Berkshire Hathaway
8:30 a.m. Employment report
1 p.m.: Oil rig count
3 p.m.: Consumer credit
*Planner subject to change.
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