Stocks Log Worst Drop in a Month, S&P Below 1400

Stocks clawed back from earlier losses Wednesday, but still ended in negative territory for a second day, fueled by disappointment over the Fed's latest minutes and ongoing worries over the euro zone.

The Dow and the S&P logged their biggest decline since March 6, while the Nasdaq suffered its worst day of the year.

S&P 500

The Dow Jones Industrial Average recovered from its 179-point drop, but still erased 124.80 points, or 0.95 percent, to close at 13,074.75. BofA and Alcoa led the blue-chip laggards.

The S&P 500 tumbled 14.42 points, or 1.02 percent, to end at 1,398.96. The Nasdaq fell 45.48 points, or 1.46 percent, to end at 3,068.09.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, jumped above 16.

Most S&P sectors closed in negative territory, led by techs and materials. Telecoms eked out a gain.

“This feels like a big [turning point] for the market,” said Ira Epstein of Linn Group. “Everyone thought they missed the boat, so we’re getting that first major break and [they’re] often sharp.”

Epstein advised investors to “hold back” to see how deep the pullback can go.

“You don’t have to rush to buy the first sizable break in this market,” he said. “I don’t think any one thing caused [this pullback]—It’s a confluence of forces and the doorway gets very small when everyone runs for it.”

Minutes from the Fed's latest meeting on Tuesday suggested that policymakers' appetite for another dose of quantitative easing significantly decreased, amid the improving U.S. economy. Still, members of the Fed remained cautious about a broad recovery, especially on the jobs front.

Morgan Stanley downgraded its forecast of further quantitative easing by the Fed to one-out-of-three chance from two out of three.

On the economic front, private employers added 209,000 jobs in March, according to the ADP National Employment Report. Economists had expected a gain of 200,000.

The ADP report is seen as a precursor to the government’s monthly employment report, which is due out this Friday.

Non-farm payrolls are expected to show a gain of above 200,000 in March, the fourth-straight month the economy has added more than 200,000 jobs, after an increase of 227,000 in the previous month. (Read More: Markets Closed Friday—Why Release Jobs Data?)

Meanwhile, the service sector expanded at a slightly slower pace than expected in March at 56.0, according to the Institute for Supply Management's non-manufacturing index. Economists had expected a reading of 57.0.

Adding to woes, Spanish borrowing costs jumped at its bond auction, fueling worries in other European markets and overshadowing a successful step back into debt markets by neighboring Portugal.

The ECB kept interest rates at a record low of 1 percent. In addition, ECB President Mario Draghi said in a news conference that inflation is likely to stay above the 2 percent target for the year, but said talk of an exit was premature.

Commodities also declined sharply across the board with gold trading near three-month lowsand crude oil hitting a six-week low.

GE slipped after Moody's downgraded the ratings of both the conglomerate and its finance unit, GE Capital by a notch, citing risks in the funding model. GE is the minority shareholder of NBCUniversal.

AIG climbed after Bernstein upgraded the insurer to "outperform" from "market perform," citing positive catalysts including final asset sales and government exit by year-end.

SanDisk tumbled to lead the S&P 500 laggards after the chipmaker warned that revenue and margins were being hurt due to weak demand from mobile phone manufacturers and a glut in supply. Rivals Micron and Broadcom also slumped.

Yahoo is eliminating 2,000 jobsin a new restructuring effort to help save the troubled Internet company.

Best Buy fell after reports that S&P could cut the consumer electronics retailer to "junk" status.

Among earnings, Monsanto edged lower along with the broader market even after the agribusiness company reported better-than-expected earnings, adding that improving sales would boost its full-year outlook.

Bed Bath & Beyond is slated to post earnings after-the-bell tonight.

Weekly mortgage applications rebounded last week, reversing seven straight weeks of declines, thanks to an increase in purchase demand as interest rates slipped, according to the Mortgage Bankers Association.

—Follow JeeYeon Park on Twitter: @JeeYeonParkCNBC

Coming Up This Week:

THURSDAY: Jobless claims, Fed's Bullard speaks, chain-store sales, Yahoo board members' 1st day; Earnings from CarMax
FRIDAY: Good Friday—markets closed/banks open, non-farm payrolls, consumer credit

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