A disappointing report on housing starts made investors nervous about the economy on Tuesday and sent stocks lower even as profits at many companies exceed expectations.
The major indexes slipped about half a percent, and the Dow Jones industrials lost 50 points.
Stocks retreated from 2009 highs after the Commerce Department said applications for home building permits fell in September by the largest amount in five months. That is a discouraging signal for future construction.
Investors will get another measure of the housing market's health Friday with a report on sales of existing homes. After several months of upbeat data, the past few weeks have brought signs that a housing recovery could be slowing.
A rebound in the dollar from 14-month lows against other major currencies also hurt stocks by driving down commodities prices and, in turn, sending energy and materials companies lower. Bond prices rose after the government said wholesale prices fell last month.
The housing data and the stronger dollar overshadowed strong earnings reports from Apple Inc., Caterpillar Inc. and health insurer UnitedHealth Group Inc.
Earnings are likely to dominate trading Wednesday. After the close of Tuesday's trading, Yahoo Inc. and SanDisk Corp. turned in profits that were well ahead of analyst expectations. The stocks gained in after-hours electronic trading.
Even with worries about the economy, Tuesday's drop was modest and not unexpected after stocks have rocketed higher with little break for seven months.
Schaeffer's Investment Research analyst Todd Salamone said the market's ability to avoid a big slide is encouraging.
"We've got a report that's disappointing and the bears haven't really gained control here," he said. "It's a good excuse just to take a breather."
The Dow fell 50.71, or 0.5 percent, to 10,041.48.
The broader Standard & Poor's 500 index fell 6.85, or 0.6 percent, to 1,091.06. The index, the basis of many mutual funds, is up 61.3 percent from a 12-year low in early March.
The Nasdaq composite index fell 12.85, or 0.6 percent, to 2,163.47.
Treasury prices rose, pushing their yields lower, after the Labor Department said wholesale prices fell in September, leaving a larger-than-expected monthly drop in the producer price index. The bond market tends to rise on signs of muted inflation. The yield on the 10-year Treasury note fell to 3.34 percent from 3.39 percent late Monday.
The dollar and gold rose. Crude oil lost ground for the first time in a week, falling 52 cents to settle at $79.09 a barrel on the New York Mercantile Exchange. Oil rose to $80.05 during the day, its highest level in a year.
Investors dumped shares of home builders after the report of a 1.2 percent drop in applications for housing permits. Pulte Homes Inc. fell 53 cents, or 5 percent, to $10.08, while Hovnanian Enterprises Inc. fell 18 cents, or 4.6 percent, to $3.76.
Not all analysts see the drop in permits as bad. Jack Ablin, chief investment officer at Harris Private Bank in Chicago, said slower building will help the market work off a glut of unsold homes.
"The faster we can clear this inventory the better it will be," he said.
The retreat in stocks comes as many earnings reports are topping expectations in part because of cost-cutting.
Dan Cook, senior market analyst at IG Markets in Chicago, is concerned that companies aren't bringing in more revenue. He noted that reducing costs by laying off workers adds to the problems facing the overall economy.
"We call it cost-cutting because that's kind of the nice term, but in reality a lot of those are consumers," he said.
Cook said companies won't be able to keep generating earnings that top expectations if improved profits don't eventually help the economy.
Apple closed up $8.90, or 4.7 percent, at $198.76, after trading at a 12-month high of $201.75. Caterpillar rose $1.76, or 3 percent, to $59.61, while UnitedHealth Group jumped $1.04, or 4.2 percent, to $25.96.
Yahoo slipped 5 cents to $17.17. In late trading it rose 2.5 percent. SanDisk advanced 2 cents to $21.48 but jumped 11.5 percent in late trading.
Two stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to 5.4 billion shares compared with 4.7 billion Monday.
The Russell 2000 index of smaller companies fell 8.93, or 1.4 percent, to 613.41.
Overseas, Britain's FTSE 100 fell 0.7 percent, Germany's DAX index lost 0.7 percent and France's CAC-40 fell 0.5 percent. Japan's Nikkei stock average rose 1 percent.