Losses in technology and healthcare companies helped pull U.S. stocks lower Tuesday, ending eight straight days of gains by the Dow Jones industrial average.
The broad sell-off followed a slide in bond prices, which sent the 10-year Treasury yield to its highest level in almost seven years. That paves the way for higher borrowing costs on mortgages and other loans.
The prospect of higher mortgage interest rates weighed on home builders, while the rise in bond yields sent shares in high-dividend-paying stocks lower.
"We're of the view that we're not in a high-rate environment, we're in a less-low rate environment," said Erik Davidson, chief investment officer at Wells Fargo Private Bank. "So we're not too concerned at these levels, but that's definitely driving the market today."
The S&P 500 index fell 18.68 points, or 0.7%, to 2,711.45. The Dow lost 193 points, or 0.8%, to 24,706.41. The drop pulled the 30-company average to a slight loss for the year.
The Nasdaq composite dropped 59.69 points, or 0.8%, to 7,351.63. The Russell 2000 index of smaller-company stocks finished flat at 1,600.34.
The market slide comes amid a strong May for stocks. The Dow is on track for a gain of 2.2%, while the S&P 500 is closing in on a gain of 2.4%. The Nasdaq is up 4%.
On Tuesday, it was the bond market that appeared to hold investors' focus.
The yield on the 10-year Treasury rose to 3.07% from 3% late Monday. That's the highest level since July 2011 for the yield, which is used to set interest rates on mortgages and other kinds of loans.
The surge came after the Commerce Department said retail sales climbed 0.3% in April. The agency also revised March sales higher to 0.8% from 0.6%. The retail sales data suggest that consumers are spending more after a weak first quarter. Bond yields tend to rise when investors expect faster economic growth and higher inflation.
The Federal Reserve has signaled that it will raise rates twice more this year, after having done so initially in March, and most economists foresee the next increase in June. Some Fed watchers have been cautioning that any lasting uptick in inflation or in economic growth might spur the Fed to pursue an additional rate increase before year's end.
"The stock market was due for a digestion of the gains that we've seen over the last eight trading sessions," said Quincy Krosby, chief market strategist at Prudential Financial.
The rise in bond yields pulled down shares in real estate investment trusts and other high-dividend-paying stocks. Essex Property Trust fell 3.4% to $233.78.
It also put investors in the mood to sell their shares in home builders. Mortgage rates, which have been rising this year, tend to track the movement in the 10-year Treasury yield. Higher mortgage rates can make it harder for would-be buyers to afford to purchase a home. D.R. Horton slid 6.7% to $40.58.
Some banks got a boost from the higher rates, which make loans more profitable. Capital One Financial rose 1.6% to $94.65.
Home Depot dropped 1.4% to $187.98 after the home-improvement retailer reported weaker-than-expected sales, partly because of inclement weather, and said the second quarter got off to a slow start.
Technology and healthcare sector companies took some of the worst losses. Chipmaker Nvidia fell 3.8% to $245.56. Drug maker Celgene slid 3.9% to $81.98.
Benchmark U.S. crude oil reversed an early side, rising 35 cents to settle at $71.31 a barrel in New York. Brent crude, used to price international oil, added 20 cents to close at $78.43 a barrel in London.
The dollar rose to 110.38 yen from 109.66 yen late Monday. The euro weakened to $1.1847 from $1.1944.
The greenback's gains weighed on precious metals prices. Gold fell $27.90, or 2.1%, to $1,290.30 an ounce. Silver dropped 38 cents, or 2.3%, to $16.27 an ounce. Copper slipped 4 cents, or 1.2%, to $3.06 a pound.
In other energy futures trading, heating oil was little changed at $2.25 a gallon. Wholesale gasoline added a penny to $2.21 a gallon. Natural gas dipped a penny to $2.84 per 1,000 cubic feet.
Major indexes in Europe finished mixed Tuesday. Germany's DAX fell 0.1% after new data showed the country's economy slowed in the first quarter. France's CAC 40 inched up 0.2%. Britain's FTSE 100 added 0.2%.
In Asia, Japan's benchmark Nikkei 225 edged down 0.2%. Australia's S&P/ASX 200 lost 0.6%. South Korea's Kospi slipped 0.7%. Hong Kong's Hang Seng dropped 1.2%.
2:15 p.m.: This article was updated with closing market prices.