Stocks fell on Thursday as investors worried that the Federal Reserve will not be as dovish as expected in its monetary policy announcement next week following strong economic data and remarks from the top European Central Bank official.
The Dow Jones Industrial Average closed 128.99 points lower, or 0.5%, at 27,140.98. The S&P 500 also pulled back 0.5% to close at 3,003.67. The Nasdaq Composite lagged, sliding 1% to 8,238.54. Both the S&P 500 and Nasdaq hit record highs in the previous session.
"I think they're concerned that maybe the fed might be backing off," said Art Cashin, director of floor operations at UBS. "Durable goods were much better than expected. That's got some people talking about possibly revising GDP forecasts."
Durable goods orders rose 2% in April, the Commerce Department said Thursday. The U.S. GDP report for the second quarter is scheduled for release Friday at 8:30 a.m. ET.
"This is an environment where you really have to look at the growth number." said Don Tonwswick, director of equity strategy at Conning. "If that were to surprise to the upside, then it could get the market out of its doldrums."
Fed expectations were also dinged after ECB President Mario Draghi said there was not a significant risk of a recession in the region. Some traders took this to mean the central bank would not be as aggressive in its easing measures and that the Fed could follow suit. The Fed is scheduled to meet Tuesday and Wednesday.
Draghi's comments came after the ECB left rates unchanged on Thursday, but opened the door for a rate cut later this year in its policy announcement.
Gregory Faranello, head of U.S. rates at AmeriVet Securities, thinks both central banks will be aggressive in their stimulative measures, however. He noted the ECB is "throwing the kitchen sink at their current economic situation."
"This is clearly setting the stage for what we're going to see next week from the Federal Reserve," he added. "We're in an environment in which central banks are defending their home turf."
Investors also pored through a mixed bag of corporate earnings reports on Thursday.
Facebook shares fell 1.9%, giving up earlier gains. CFO David Wehner said in a conference call Wednesday evening that the company expects revenue to fall "sequentially" going forward. "We also expect more pronounced deceleration in the fourth quarter and into 2020, partially driven by ad-targeting related headwinds and uncertainties," he said.
Wehner's comments overshadowed stronger-than-expected results for the second quarter.
Ford shares slid 7.5% after its earnings fell short of estimates and its 2019 guidance disappointed investors. Boeing shares were battered again after reporting in the previous session a massive quarterly loss. Boeing dropped 3.7% after sliding 3.1% in Wednesday.
Tesla plunged 13.6% after the electric car maker reported a bigger-than-expected loss for the previous quarter.
About a third of S&P 500 companies have reported second-quarter earnings so far. Of those companies, 75% have posted a better-than-forecast profit, according to FactSet. Alphabet, Amazon, Intel, Starbucks and Mattel are all scheduled to report after the close Thursday.
"The beat rate has been a little bit higher than the long-term beat rate, so that's a good thing," said Liz Ann Sonders, chief investment strategist at Charles Schwab. "Of course, that's off incredibly weak expectations coming into the quarter."
"There is still some skittishness on the part of companies," Sonders said. "There is no question that there is concern on global growth and, in some cases, currency strength and, of course, trade."
—CNBC's Elliot Smith and Patti Domm contributed to this report.