The S&P 500 fell 0.55 percent, with telecommunications falling about 2 percent.
Kim Forrest, senior equity analyst at Fort Pitt Capital, said "none of the news we got was that negative." "Unless you're Hain Celestial, you're fine." "I think this is a profit-taking event," she said.
The Nasdaq composite closed approximately 0.7 percent.
"You're seeing equities around the world a little bit weak and you've got some volatility in rates and the FX market," said Jeremy Klein, chief market strategist at FBN Securities. "I think it's enough of an excuse to take some profit."
"We hit a trifecta yesterday, and that's certainly a reason to take a breather," said Art Hogan, chief market strategist at Wunderlich Securities. "The magnitude of the move isn't a big one." "I think we're in the middle of a consolidation day," he said.
"This is a normal pullback after a strong rally," said Adam Sarhan, CEO of Sarhan Capital.
Investors also kept an eye on the yen, which broke below the key 100 mark for the first time since June after San Francisco Fed President John Williams said in a paper that central banks might have to raise inflation targets, focus more on growth and back much looser fiscal policy in future.
"I think what we're seeing here, for the first time in a few weeks, is a shift from risk-on assets into risk-off assets," Sarhan said.
In afternoon trade ET, the yen held near 100.3 against the dollar, while the greenback was down about 0.9 percent versus a basket of currencies. The yen hit a low of 99.53 versus the dollar earlier.
That said, New York Fed President William Dudley said in a Fox Business Network interview the Fed may raise rates as soon as next month. "We're edging closer towards the point in time where it will be appropriate I think to raise interest rates further," Dudley said, citing strength in the labor market.
"I think the last think the Fed want's to see is a bubble in the stock market," Baird's Bittles said, adding Dudley's goal with his remarks was to keep the market on edge.
USD/JPY intraday chartSource: FactSet
Gold futures for December delivery settled up $9.40 at $1,356.90 per ounce after Dudley spoke.
Market expectations for a rate hike next month remained low after Dudley's interview, however. According to RBS, the odds of a September rate hike rose to 20 percent from 18 percent.
Atlanta Fed President Dennis Lockhart said later on Tuesday that the U.S. economy is likely strong enough to withstand at least one rate hike before the end of the year.
"The market loves easy money, and any data that may suggest a rate hike, will spook investors a little bit," Sarhan of Sarhan Capital said.
U.S. economic data came in mixed, with the July reading of the consumer price index (CPI) coming in unchanged — matching expectations— and July housing starts coming in at a five-month high. Industrial production for the same month, meanwhile, rose 0.7 percent, more than the 0.3 percent expected increase.
"Bottom line, because the Fed looks at PCE instead of CPI, they can tell themselves that they haven't met their inflation objectives and thus rationalize a fed funds rate of just .375%. For the rest of us who look at CPI, they have for 9 straight months," Peter Boockvar, chief market analyst at The Lindsey Group, said in a Tuesday note to clients.
A slew of companies also posted quarterly results, including Dow component Home Depot and Dick's Sporting Goods.
Overseas, European stocks fell, with the Stoxx 600 index falling 0.79 percent. In Asia, the Nikkei 225 dropped 1.62 percent, while the Shanghai composite slipped 0.49 percent.
The Dow Jones industrial average closed 84.03 points lower, or 0.45 percent, at 18,552.02, with Johnson & Johnson leading decliners and Intel leading laggards.
The S&P 500 ended 12 points lower, or 0.55 percent, to trade at 2,178.15, with telecommunications leading nine sectors lower and and energy the only advancer.
The Nasdaq fell 34.90 points, or 0.66 percent, to close at 5,227.11.
About two stocks declined for every advancer at the New York Stock Exchange, with an exchange volume of 736 million and a composite volume of 3.127 billion at the close.
U.S. crude for September delivery settled at its highest level since July 6, at $46.58 a barrel.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded higher, near 12.6.
—Reuters contributed to this report.
On tap this week:
*Planner subject to change.
Earnings: Urban Outfitters, Momo, Popeyes Louisiana Kitchen, Advance Auto Parts, Cree
Earnings: Target, Staples, Lowes, Cisco, L Brands, NetApp, Eaton Vance, American Eagle Outfitters, Performance Food, CACI
2 p.m. FOMC minutes
Earnings: Wal-Mart, Applied Materials, Gap, Ross Stores, Hormel Foods, Mentor Graphics, Nestle
8:30 a.m. Initial claims; Philadelphia Fed survey
10 a.m. New York Fed President William Dudley
4 p.m. San Francisco Fed President John Williams
Earnings: Deere, Estee Lauder, Foot Locker, Madison Square Garden, The Buckle