U.S. equities fell on Thursday, pulling back from record highs, on worries that a corporate tax cut could be delayed.
A proposed plan by Senate Republicans would push slashing the corporate tax rate from 35 percent to 20 percent until 2019. The move contrasts with a bill working its way through the House. The proposed Senate measure would also alter the individual tax system.
"That's what gave us this new leg down," said Art Cashin, director of floor operations at UBS, on CNBC's "Squawk Alley."
Expectations for tax reform have increased recently, helping lift the stock market to all-time highs. The major indexes briefly fell more than 1 percent on Thursday, but managed to close well off their session lows.
The pulled back 0.4 percent to 2,584.62, with industrials as the leading decliner; the sector fell 1.3 percent.
The Nasdaq composite lagged, falling 0.6 percent to 6,750.05.
The Russell 2000, which tracks small-cap stocks, fell nearly 0.5 percent. Companies in the Russell 2000 have more to gain from an immediate domestic tax cut since they are more likely to be U.S.-based and not sprawling global entities.
"We expect short-term momentum to deteriorate temporarily, triggered by technology stocks as they (finally) react to overbought extremes." said Katie Stockton, chief technical strategist at BTIG, in a note. "A buying opportunity is likely to present itself in 2-3 weeks based on former setups of this nature."
Tech is by far the best-performing sector in the S&P 500 this year. The sector is up 37 percent in 2017, boosted by strong earnings from companies in the space.
Stocks posted record closing highs on Wednesday, adding to their already strong gains for the year. The S&P 500, Dow and Nasdaq are all up at least 15 percent in 2017.
"The market is digesting its recent gains," said Mark Luschini, chief investment strategist at Janney Montgomery Scott. "After a prolonged rally, everyone gets worried that they will be caught off-guard when the music stops."
Also giving investors pause was a decline in risky high-yield bonds. The iShares iBoxx High Yield Corporate Bond exchange-traded fund (HYG) fell 0.5 percent Thursday and has pulled back 1.7 percent over the past month. Wall Street looks at high-yield bonds as a leading indicator for stocks.
"People are wondering if that's a canary in the coal mine" for stocks, said Janney's Luschini.
Stocks around the world also declined Thursday. The Stoxx 600 — which tracks a broad swath of European equities — fell 1.1 percent. In Asia, the Japanese Nikkei 225 finished 0.2 percent lower; it briefly rose more than 2 percent to hit its highest level since 1991.
Global equities have risen alongside their U.S. counterparts this year as economic conditions around the world have improved.
Later on Thursday, Disney, Nvidia, and News Corp. will release their quarterly results. Media stocks have been in the spotlight recently as talks about dealmaking pick up. Earlier this week, CNBC reported that 21st Century Fox has been in talks to sell most of its company to Disney. As for chip maker Nvidia, its stock has been on fire this year, rising 95 percent.
Earnings have been mostly strong this season. According to FactSet, 73 percent of S&P 500 companies that have reported have surpassed earnings expectations.