Stocks stumble on record oil, inflation worries

Bond prices rose as investors sought the relative safety of government securities. The yield on the benchmark 10-year Treasury note, which moves opposite its yield, fell to 3.78 percent from 3.83 percent late Monday.

Gold gained, and the dollar fell against other major currencies.

Concerns about rising inflation, spurred by higher prices for commodities, were the topic of a speech by Kohn. The policymaker said he was cautiously upbeat that the economy will recover, and that the central bank "appears to be appropriately calibrated" to manage inflation over the medium term.

Meanwhile, the Federal Reserve Bank of Chicago reported that U.S. economic activity weakened further in April and reached its lowest level since the 2001 recession.

But some analysts believe the market's slide gave investors an opportunity to collect profits. Peter Cardillo, chief market economist at New York-based brokerage Avalon Partners, said Tuesday's decline doesn't change the market's long-term prospects.

"The oil price rise is being done by speculators and does not reflect market fundamentals," he said. "But, it still has an effect on the consumer -and investor confidence is equal to consumer confidence, which has been having swings as of late."

Cardillo is watching to see any kind of indicator about how much Americans are spending to get a better idea of how Wall Street views the economy. "It's a battle between prices and the consumer," he said, "and the consumer usually does win."

Investors did get some data on consumer spending during the session. The International Council of Shopping Centers and UBS Securities showed chain-store sales fell 0.4 percent during the week of May 17, down from 1 percent the previous week.

Investors also mined earnings reports from Home Depot Inc., Target Corp., and Staples Inc. for clues about consumers.

Home Depot fell $1.50, or 5.2 percent, to $27.37 after it reported first-quarter profit fell 66 percent amid a continued housing slump.