U.S. stocks closed off session highs Wednesday, with the Dow and S&P little changed after the Federal Reserve's April meeting minutes said a June rate hike was likely if the data improves. (Tweet This)
"I think this is a short-term, kneejerk reaction. When you look at what the Fed is saying, they're saying the economy is in pretty good shape," said Brad McMillan, chief investment officer at Commonwealth Financial.
Financials climbed nearly 1.9 percent to lead three S&P 500 advancers, while utilities was the greatest laggard. Goldman Sachs and JPMorgan Chase contributed the most to gains in the Dow Jones industrial average, while Wal-Mart had the greatest negative impact. The stock fell 3 percent ahead of its earnings due Thursday morning.
The SPDR S&P Regional Banking ETF (KRE) closed 4.24 percent higher for its best day since Feb. 12, while the SPDR S&P Bank ETF (KBE) gained 4.15 percent for its best day since March 1.
"The hawkish tone of today's minutes can be interpreted as more … comforting out of the FOMC that either economic data is benign or getting better," said Jerry Villella, global investment specialist in Dallas for JPMorgan Private Bank.
The Federal Open Market Committee's April meeting minutes said, "Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June."
The minutes also said, "some participants noted that global financial markets could be sensitive to the upcoming British referendum on membership in the European Union or to unanticipated developments associated with China's management of its exchange rate."
"We still think there's likely to be two more hikes by year end," Villella said. "It looks like the probably of an 'out' vote in the UK, those odds are dropping. The lower those odds get you'd think it would make the Fed more comfortable moving in June versus July."
After the Fed minutes' release, Fed funds futures were signaling a 27 percent chance of a June rate hike, versus 16 percent in the morning and 4 percent last week, according to RBS.
Read MoreRate hike odds spike across the board after Fed minutes
"I think (Fed officials) are progressing to the point where action is not only tolerated by the market but encouraged by the market," said Alan Rechtschaffen, financial advisor and senior vice president at UBS Wealth Management Americas.
"All things being equal if there are no surprises I think June is definitely on the table. ... Whether or not they will do it in June depends on their communication," he said.
The S&P ended less than 1 point higher, while the Dow closed about 3 points lower. The Dow briefly swung 100 points lower after the minutes, more than giving up a 100-point gain leading into the 2 p.m. ET release.
Five-day performance
"Today's comments could lead to increased volatility in financial markets over the next several weeks as investors adjust their portfolios and react to incoming economic data," Michael Sheldon, chief investment officer at Northstar Wealth Partners, said in an email. He noted a June hike "is certainly not a sure thing but the odds appear to be growing."
The spiked above 0.9 percent to its highest since mid-March, while the 10-year yield was last near 1.85 percent.
The U.S. dollar index extended gains, rising more than half a percent to levels not seen since late March, with the euro near $1.122 and the yen near 110.2 yen against the greenback.
The SPDR S&P Retail ETF (XRT) closed nearly 1.4 percent lower, after some disappointing earnings reports from Target and Staples. The ETF is down about 19.4 percent over the last 12 months.
The Nasdaq composite outperformed, closing half a percent higher. Apple and the iShares Nasdaq Biotechnology ETF (IBB) both climbed more than 1 percent.
U.S. crude oil futures settled down 12 cents at $48.19 a barrel. Earlier, oil traded higher after the EIA's weekly inventory data showed a 1.3 million barrel build in crude, while other fuel stockpiles declined.
Bruce Bittles, chief investment strategist at R.W. Baird attributed much of the morning gains to stocks being "a touch oversold. They've been down three weeks in a row. The pessimism has mushroomed a little bit."
"I think the markets would like to see the economy better because if profits are the problem (we need economic growth)," he said.
In corporate news, Target reported a lower-than-expected 1.2 percent increase in comparable sales, while net revenue declined to $16.2 billion, mainly due to the sale of pharmacy and clinic business to CVS Health. Guidance was below expectations, with Target noting its second-quarter view "has been tempered by the recent slowdown in consumer trends." The firm said it still believes its prior earnings guidance range "is achievable."
"They're basically seeing the same thing as all the department stores are seeing. That's going to weigh on shares this morning," said Brian Yarbrough, consumer research analyst at Edward Jones.
Target closed 7.6 percent lower, off session lows.
"There's a lack of innovation on the electronics side and we're long in the tooth in athleisure. ... We need a new trend that will emerge to drive revenue growth," Yarbrough said.
In other earnings news, Staples beat slightly on the top and bottom line, but North American same-store sales were down 4 percent, a bigger drop than the 3.1 percent drop analysts had expected. Shares closed 0.66 percent lower.
Lowe's reported earnings and revenue above expectations, and the same-store sales increase of 7.3 percent was well above the consensus estimate of a 4.4 percent rise. Shares gained 3.3 percent.
Hormel posted earnings a touch above expectations, while revenue was essentially in-line. The food manufacturer also raised its full-year earnings forecast. Shares closed 8.56 percent lower.
In other news, the New York Stock Exchange said Wednesday morning it had a technical issue that was later resolved.
Phil Quartuccio, CEO of Illustro Trading, said the issue was "very small" and that traders were awaiting the afternoon's release of the Fed minutes.
Major U.S. Indexes
European stocks closed more than half a percent higher, with bank stocks outperforming.
Asian stocks closed lower, with the Shanghai composite more than 1 percent lower and the Nikkei 225 a touch lower.
In Japan, real gross domestic product (GDP) for the January-March period expanded an annualized 1.7 percent. On a quarterly basis, GDP grew 0.4 percent, topping a poll forecast for a 0.1 percent rise.
The major U.S. stock indexes sold off in afternoon trade Tuesday while the rate-sensitive 2-year yield rose as the latest Fed commentary increased market expectations for the Federal Reserve raising rates as soon as its June meeting.
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As of Wednesday's close, the S&P 500 and Nasdaq composite were tracking for weekly gains, while the Dow was on pace for a mild decline.
The Dow Jones industrial average closed down 3.36 points, or 0.02 percent, at 17,526.62, with Wal-Mart and Nike leading decliners and JPMorgan Chase the top gainer.
Transports closed 0.3 percent higher with Alaska Air leading advancers.
The closed up 0.42 points, or 0.02 percent, at 2,047.63, with financials, tech and health care leading and utilities the greatest laggard.
The Nasdaq composite closed up 23.39 points, or 0.50 percent, at 4,739.12.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose to near 15.9.
Gold futures for June delivery settled down $2.50 at $1,274.40 an ounce.
—CNBC's Patti Domm and Peter Schacknow contributed to this report.
On tap this week:
Thursday
Earnings: Wal-Mart, Gap, Applied Materials, Dick's Sporting Goods, Autodesk, Advanced Auto Parts, Ross Stores, Shoe Carnival, Mentor Graphics, Brocade
8:30 a.m. Jobless claims; Philadelphia Fed survey
9:15 a.m.: Fed Vice Chairman Stanley Fischer
10:30 a.m. New York Fed President William Dudley press briefing
Friday
Earnings: Campbell Soup, Deere, Foot Locker, The Buckle
10 a.m. Existing home sales
*Planner subject to change.
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