Cash flowed into ultra-safe investments such as U.S. Treasurys, pushing the yield on the 10-year note as low as 1.80 percent, near a seven-month low. The yield finished the day at 1.84 percent as stocks moved off their earlier lows.
One reason that demand for Treasurys is increasing: As Europe deteriorates and hiring in the U.S. slows, traders believe that the Federal Reserve is more likely to engage in another round of bond-buying to juice the economy.
Bond-buying by the Fed lowers bond yields, pushing more cash into stocks and commodities. When traders expect the Fed to act, they buy bonds to take advantage of the extra demand that the Fed's buying will create.
Economic indicators and corporate earnings in the U.S. continue to signal recovery, albeit a choppy one. The government said after trading began that U.S. wholesale stockpiles grew in March at their slowest pace in four months, a sign demand is too weak for companies to ramp up production.
The Standard & Poor's 500 index and Nasdaq composite average both closed well above their lows for the day. The S&P fell 9.14 points, or 0.7 percent, to 1,354.58. The Nasdaq dropped 11.56, or 0.4 percent, to 2,934.71.
Tchir expects the market to grow more volatile as traders track deadlines for indebted European nations to repay bond investors or raise cash. For investors who benefited from the recent rally, he said, "I think it's time to take money off the table." There's too much of a disconnect between the Dow's recent four-year high and European markets that are scraping three-year lows, he said.
European stocks rose into the close, recovering some earlier losses. Indexes in France and London closed down less than 1 percent after steep losses earlier.
In corporate news:
— Chiquita Brands plunged 28.9 percent after the banana purveyor reported first-quarter earnings that were far below the expectations of Wall Street analysts.
— Macy's lost 3.8 percent after the department store chain made an earnings forecast that fell below Wall Street projections.
— Walt Disney Co. rose 1.6 percent, the most of the 30 stocks in the Dow, after the whimsy-production conglomerate said its fiscal second-quarter earnings outpaced expectations.
Daniel Wagner can be reached at www.twitter.com/wagnerreports.