The three major U.S. stock indexes ended lower Wednesday after a choppy trading session as investors worried that China would slow U.S. government bond purchases and that U.S. President Donald Trump would end a key trade agreement.
The S&P and the Nasdaq snapped a six-day rally after Bloomberg reported that China, the world's biggest holder of U.S. Treasuries, could slow or stop buying the government bonds.
The report sent Treasury yields to a 10-month high.
The S&P 500 pared some losses as yields backed away from their intraday peaks and investors digested the China report.
But the index lost ground again in mid-afternoon trading after Reuters reported that Canada is increasingly convinced Trump will soon announce a U.S. exit from the North American Free Trade Agreement. It cited two unnamed government sources.
"It's a fairly light week for economic and financial data. In a week like this, political headlines can have a bigger impact than they normally would," said Jon Mackay, investment strategist at Schroders Investment Management in New York.
While Mackay said the selloff was overblown, he noted that a change to NAFTA could hurt corporate earnings.
"If that news is true, you'd expect a higher dollar price and a negative impact to earnings," Mackay said.
The Dow Jones Industrial Average fell 16.67 points, or 0.07 percent, to 25,369.13, the S&P 500 lost 3.06 points, or 0.11 percent, to 2,748.23 and the Nasdaq Composite dropped 10.01 points, or 0.14 percent, to 7,153.57.
Investors were particularly skittish about the China report as they worried that the market was overdue for a correction.
"It's a reflection of investor weariness and awareness that the market has risen for four straight months without seeing a major pullback," said Robert Pavlik, chief investment strategist, SlateStone Wealth in New York.
"As the day wore on, Treasury yields started to move lower on the realization the story doesn't have any legs," he said. "There's no way on earth the Chinese stop buying U.S. Treasuries."
The S&P financial index was the best performer among the S&P 500's 11 major sectors with a 0.9 percent rise, helped by gains in Berkshire Hathaway, JPMorgan and Wells Fargo.
Banks and insurance companies often rise with bond yields as investors expect a profit boost from higher interest rates.
Rate-sensitive sectors such as utilities and real estate were the biggest losers with declines of 1.1 percent and 1.5 percent.
Investors started 2018 with high hopes for strong U.S. earnings growth. Banks will kick off earnings season Friday.
Earnings for S&P 500 companies are expected to increase by 11.8 percent, with the biggest contribution from the energy sector, according to Thomson Reuters I/B/E/S.
Berkshire Hathaway rose 1.3 percent after the conglomerate promoted two top executives, cementing their status as the most likely successors to Warren Buffett.
Declining issues outnumbered advancing ones on the NYSE by a 1.59-to-1 ratio; on Nasdaq, a 1.09-to-1 ratio favored decliners.
The S&P 500 posted 74 new 52-week highs and 7 new lows; the Nasdaq Composite recorded 98 new highs and 24 new lows.
Volume on U.S. exchanges was 6.93 billion shares, above the 6.38 billion average for the full session over the last 20 trading days.