The Dow shed roughly two-tenths of a percent, the S&P 500 shed a quarter of a percent and the Nasdaq lost a tenth of a percent.

A Labor Department report showed the number of Americans filing new claims for unemployment benefits increased slightly last week, while layoffs dropped to an 11-month low in July as labor market conditions remain tight.

And although the annual inflation rate has dropped to 3%, Ken Moraif, CEO of Retirement Planners of America, thinks it could tick back up to 4% - possibly triggering two more rate hikes by the Federal Reserve.

"I've decided to brand it 'the inflation surprise.' I think there's going to be a correction between now and year-end when people realize inflation ain't done yet. [FLASH] The way I've described it to our clients is that if I was the pilot of an airplane and you were the passenger, it's going to get very bumpy, put on your seat belt. But the airplane is not going to crash. We're still going to get to our destination, which I think will be higher than it is today - both the S&P and the Dow."

In company earnings, Qualcomm shares dropped more than 8% after the chip maker gave a gloomy forecast due to the ongoing slump in the consumer electronics market.

Shares of PayPal tumbled as investors were disappointed by the payments firm's quarterly operating margin, even as executives said they expect improvement.

And U.S. travel stocks fell on downbeat quarterly reports from Spirit Airlines and Expedia, heightening concerns that domestic travel demand may be easing after a strong rebound.