US stocks have fallen for a second day in a row, knocking the Dow industrials below 17,000, as investors turned cautious ahead of the start to corporate earnings season.
At the closing bell, the Dow Jones Industrial Average shed 117.59 points, or 0.7%, to 16,906.62, closing 1% below its all-time high reached before Independence Day.
The S&P 500 index fell 13.94 points, or 0.7%, to 1,963.71. The technology-heavy Nasdaq Composite Index slumped 60.07 points, or 1.3%, to 4,391.46, its sharpest drop in two months.
Trading volumes picked up from the low levels seen in recent days, and Wall Street traders said they were fielding an unusually high number of calls from clients looking for explanations for the selling. No single catalyst triggered the selling, they said.
"Valuations are getting more extreme, and some people are likely thinking it's time to cut back," said Sandy Lincoln, chief market strategist at BMO Global Asset Management.
Mr Lincoln said Tuesday's pullback was more emblematic of traders adjusting their positions than long-term investors making big portfolio changes.
After a slow start to the year, stocks have rallied in recent weeks, with the Dow last week topping 17,000 for the first time in its history. Fast gains have prompted questions about whether share prices now look stretched. The blue-chip benchmark is up 2% so far this year, while the broader S&P 500 has climbed 6.2%.
Losses Tuesday were concentrated in the market's riskier, faster-moving sectors. The Russell 2000 index of small-company shares dropped 1.2%, while the Nasdaq Biotechnology Index tumbled 2.2%. The biotech index has now slumped 4.6% over the past two sessions, its largest such skid in nearly three months.
Internet stocks also fell sharply, with Twitter sinking 7% and Facebook giving up 3.9%.
"There's some de-risking going on in a lot of high-multiple growth names in technology," said Michael James, managing director of equity trading at Wedbush Securities.
Shares in the S&P 500's utility sector, which pay higher dividends and are viewed as a defensive corner of the market, rose. Utility stocks are this year's best performers, a signal to some that investors are increasingly less willing to take big risks.
As in recent days, investors "continue to sell growth names" and buy "anything with yield," said Tommy Labenz, head of sector trading at brokerage firm ITG. "I'm seeing some sell orders here and there, but people aren't running to the exits," he said.
Tuesday's declines came as stock investors prepared for a flurry of earnings reports in the weeks ahead. Alcoa posted second-quarter earnings after the closing bell, a report widely recognised as the start to earnings season.
Alcoa rose 0.7% in Tuesday's session, then added 2.4% in late trading, after posting better-than-forecast earnings and revenue.
Just ahead of earnings season, many investors were reluctant to commit more money to the market, according to Yousef Abbasi, a market strategist at brokerage JonesTrading Institutional Services.
S&P 500 companies are forecast to report a 4.8% rise in second-quarter earnings per share from a year earlier, according to FactSet. That would outpace the 2.1% rise posted in the first quarter of 2014.
"What we're seeing is cautious investors who saw strong gains saying, 'Let me pare some of this headed into earnings season,'" Mr Abbasi said.
European shares declined Tuesday for the third session in a row, with the Stoxx Europe 600 losing 1.4%. In Asia, Japan's Nikkei slumped 0.4%, while Hong Kong's Hang Seng Index ended flat.
Gold futures fell less than 0.1% to $US1,316.00 a troy ounce and crude-oil futures inched down 0.1% to settle at $US103.40 a barrel.
Buyers drove down yields on benchmark 10-year Treasury notes, which move inversely to prices, to 2.565% compared with 2.617% late on Monday.
Boeing dropped 1.8% after a report by Standard & Poor's Ratings Services said that the airplane manufacturer could need to bolster its loans to its clients should US lawmakers opt to close the US Export-Import Bank. The agency's charter is due to expire at the end of September and lawmakers are wrangling over its future.
Financial shares including Goldman Sachs Group and Morgan Stanley slumped after analysts at KBW cut earnings estimates for the investment banks. Goldman dropped 1.7%, while Morgan Stanley declined 2%.