Consumer confidence in February slumped to a 10-month low as the short-term outlook on jobs worsened. Results from retailers added little hope, as bellwethers like Target Corp forecast a tepid performance in the first quarter.
There's a bit of an adjustment process in terms of the growth outlook as to what is going to be the major driver, said Nick Kalivas, vice president of financial research & senior equity index analyst at MF Global in Chicago.
If the economic outlook gets adjusted down, certainly the materials and semis would be the places to see selling, he said.
Stocks associated with a strong cyclical upturn in the economy were hit. Top performers during last year's rally, including technology, materials and energy stocks led the downside. Oil futures fell $1.45 to $78.86 a barrel, pulling the S&P energy index <.GSPE> down by 1.5 percent. Dow component Caterpillar Inc shed 2.4 percent to $56.66.
Chipmaker Intel Corp dropped 2.4 percent to $20.38 and the PHLX semiconductor index <.SOXX> lost 2.8 percent.
The weak data added to the cautious tone before congressional testimony from Federal Reserve Chairman Ben Bernanke on interest rate policy beginning on Wednesday.
Meanwhile, a separate report showed home prices unexpectedly slipped in December, adding to concerns over the sustainability of the economic recovery.
The Dow Jones industrial average <.DJI> slipped 100.97 points, or 0.97 percent, to 10,282.41. The Standard & Poor's 500 Index <.SPX> gave up 13.41 points, or 1.21 percent, at 1,094.60. The Nasdaq Composite Index <.IXIC> was off 28.59 points, or 1.28 percent, to 2,213.44.
Overseas data set a negative tone early on with German business confidence falling unexpectedly for the first time in almost a year. The day's losses reversed stocks' recent trend and the S&P 500 racked up its worst decline since early February.
The broad index had risen in four of the past five trading days and posted weekly gains in the last two weeks.
Investors shied away from risk ahead of Bernanke's testimony when he is likely to be asked about the Fed's surprise move to raise the discount rate last week.
Home Depot Inc was a bright spot, reporting results that beat estimates and raising its profit forecast. The Dow component gained 1.4 percent to $30.75.
Jason Weisberg, trader at Seaport Securities in New York, said the strong earnings season has been overshadowed by uncertainty about the political direction.
The really nice thing is the guidance you're hearing from corporations, it looks very good, said Weisberg.
But discount retailer Target fell 1.2 percent to $50.06 after it gave a tepid view of its first-quarter outlook even as it posted a fourth-quarter profit slightly above expectations.
(Editing by Kenneth Barry)