Wall Street's mood has shifted from confident to cautious as the market digests the latest round of corporate earnings and awaits another day of judgment from the Federal Reserve.
The blue-chip Dow Jones Industrial Average dropped 0.62 percent in the week to Friday to 12,487.02 after setting a record earlier in the week of 12,621.77.
The broad-market Standard & Poor's 500 index shed 0.58 percent to end the week at 1,422.18 and the tech-heavy NASDAQ composite declined 0.64 percent to 2,435.49.
The market see-sawed throughout the week, hitting fresh highs on Wednesday on some positive earnings news from the tech sector, but came under pressure later in the week as bond yields started rising and fresh jitters emerged about next week's Federal Reserve meeting on Wednesday.
Some analysts said the stock market was spooked by developments in the bond market, highlighting fears that the low interest rate environment fueling US economic and profit growth may be in jeopardy.
The yield on the 10-year Treasury bond rose to 4.879 percent from 4.773 percent a week earlier while that on the 30-year Treasury bond jumped to 4.980 percent from 4.860 percent.
The bond market slide came as strong economic data have fueled inflation fears and dashed hopes for a rate cut by the Fed, which could stimulate activity. The Fed is expected to keep its base rate at 5.25 percent while noting a firming of economic activity.
"Next week's early focus will be on the Federal Reserve's FOMC meeting with the rate and policy announcement due on Wednesday," said William Drahuschak at Janney Montgomery Scott.
"We doubt the Fed will do anything with rates, and it is highly likely some reference to ongoing inflation concerns will remain a part of the policy statement. As we noted several times recently, interest rates are a key issue right now," Drahuschak said.
Drahuschak said the market is watching for a possible move of bond yields above the symbolic level of five percent.
"The economic consequences of a move to 5 percent might not be great, but the stock market likely would not take it well," he said. "As a result we would maintain a cautious near-term view."
Al Goldman, chief market strategist at AG Edwards, said the Fed meeting comes at a time when the market is somewhat apprehensive about the corporate earnings season and needs to consolidate its strong gains.
"There is a growing concern that the Fed might talk about inflation concerns," he said.
"This is happening at a time the market was due for a rest anyway. My feeling is that we'll probably got a follow-through selloff at least into the Fed meeting. And if the Fed doesn't say anything too alarming, I think the market can start doing better. Because the economic news remains healthy, corporate earnings had disappointed some but in my opinion, earnings are doing OK," Goldman said.
Fred Dickson at DA Davidson said 55 percent of companies reporting earnings have beaten market forecasts, compared with 73 percent in the same period in the past quarter.
"The lack of headline-grabbing positive earnings surprises and upward revisions in guidance now appear to be weighing on investors' minds, as we had previously written it would," he said in a note to clients.