NEW YORK – U.S. stocks fell on Wednesday as investors dialed back expectations of how aggressively the Fed would act to stimulate the economy.
With the uncertain outcomes of the U.S. elections and a Fed meeting next week, traders positioned themselves for more volatile markets. The CBOE Volatility index rose 2.4% and was up for the third consecutive day.
Materials stocks, which have rallied in recent weeks on expectations of heavy stimulus, were the day's biggest decliners. The S&P Materials index lost 0.9%.
In recent sessions, investors reduced their bets on the size and timetable of the Fed's potential purchases of Treasury debt. The Wall Street Journal furthered those expectations after reporting the Fed hoped to avoid a "shock and awe" approach.
"People are using that as a reason to take profits after what has been a very strong couple of months for equities," said Tim Holland, co-portfolio manager of Aston/TAMRO Diversified Equity Fund in Alexandria, Virginia.
Among the materials sector's biggest percentage decliners, Freeport McMoRan Copper & Gold Inc slumped 2.8% to $95.50, and AK Steel Holding Co dropped 3.4% to $12.40.
The rise in volatility suggests growing caution among investors. TD Ameritrade chief derivatives strategist Joe Kinahan said investors have been hedging gains through use of options in equity index and exchange-traded funds.
"They don't necessarily want to be out of their current positions," Kinahan said. "By buying protection and hedging recent gains against their current positions, investors now have the ability to pull the cord on the downside."
The Dow Jones industrial average dropped 43.18 points, or 0.39%, to 11,126.28. The Standard & Poor's 500 Index lost 3.19 points, or 0.27 percent, to 1,182.45. But the Nasdaq Composite Index gained 5.97 points, or 0.24 percent, to 2,503.26.
The Nasdaq advanced as Broadcom Inc jumped 11.7 percent to $41.56 a day after it unexpectedly forecast a potential rise in fourth-quarter revenue.
Consumer products maker Procter & Gamble Co's quarterly profit beat expectations, helped by strength in emerging markets. The Dow component rose 0.4% to $63.08.
The day's economic data was mixed, with sales of new U.S. single-family homes rising more than forecast in September, while demand for durable goods, excluding aircraft, unexpectedly fell in the same month.
U.S.-listed shares of Argentine companies surged following reports of the death of Nestor Kirchner, the country's former president. Kirchner, who was also the husband of Argentina's current president and viewed as a contender for the post in next year's election, was perceived as unfriendly to big business.
The ADRs of Transportadora de Gas Del Sur SA, the operator of Argentina's dominant natural gas pipeline system, soared 9.6% to $4.35, while IRSA Investments and Representations Inc jumped 7.6 percent to $14.98.
Volume was light, with about 7.8 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below the year-to-date moving average of 8.75 billion.
Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 2 to 1, while on the Nasdaq, eight stocks fell for every five that rose.