Government data showed sales at retailers fell for a second straight month in April, after a string of more upbeat reports suggested a turning point in the economic cycle.
Retail activity is a closely followed indicator, as it accounts for roughly two-thirds of the U.S. economy. Analysts had forecast no change or even a small increase in retail sales, excluding autos.
Investors have been looking all over the place and noting the sea of green shoots that have been emanating from every economic report you care to look at, said Paul Nolte, director of investments at Hinsdale Associates in Hinsdale Illinois.
This one certainly did not fit in that category so that reversed some of the past months' of retail sales numbers and put into question again maybe the consumer is still in the process of pulling back and not spending as much money.
Shares in Wal-Mart , the world's biggest retailer and a bellwether for the sector, fell 1.6 percent to $49.83, while Macy's Inc dropped 5.3 percent to $11.70. The department-store operator said it still expects sales to fall this year as consumers tighten their belts. The S&P retail index <.RLX> fell 2.9 percent.
The Dow Jones Industrial Average <.DJI> fell 182.87 points, or 2.16 percent, to 8,286.24. The Standard & Poor's 500 Index <.SPX> lost 23.07 points, or 2.54 percent, to 885.28. The Nasdaq Composite Index <.IXIC> shed 45.34 points, or 2.64 percent, to 1,670.58.
The session was a stumbling block for the market after an impressive run-up that has sent the S&P 500 surging. The index remains up nearly 31 percent from the bear market low hit in early March.
Shares of big manufacturers were also hurt, with 3M Co down 4.6 percent to $56.78 and United Technologies Corp off 4.4 percent to $50.18, making the companies the top drags in the Dow industrials.
IPod maker Apple Inc was off 3 percent to $120.59 and was among the top drags in the Nasdaq.
Investors pulled cash out of the financial and technology sectors, which have helped lead the recent rally, in favor of more defensive plays, such as health-care companies.
Merck & Co Inc added 2.8 percent to $25.67, while Pfizer Inc climbed 2.4 percent to $15.29.
(Reporting by Leah Schnurr; editing by Jeffrey Benkoe)