US stocks have dived on reports President Joe Biden plans to almost double the capital gains tax in what news analysts say provided an excuse to take profits in a directionless market ahead of big tech's earnings next week.
The three main indexes on Wall Street also fell on reports that Biden planned to raise income taxes on the wealthy, a proposal some said would be hard to pass in Congress.
"If it had a chance of passing, we'd be down 2,000 points," said Thomas Hayes, chairman and managing member at hedge fund Great Hill Capital LLC.
Paul Nolte, portfolio manager at Kingsview Investment Management in Chicago, said when a proposal is floated about raising taxes or capital gains, everybody gets excited, sells first and asks questions later.
"It is more of a short-term, knee-jerk reaction," he said.
Biden will propose raising the marginal income tax rate to 39.6 per cent from 37 per cent and nearly double capital gains taxes to 39.6 per cent for people earning more than $US1 million ($A1.3 million), sources told Reuters.
The proposal targets about $US1 trillion for child care, universal pre-kindergarten education and paid leave for workers, the sources said.
Markets have been listless after the Dow and S&P 500 recently scaled all-time peaks as investors await guidance from Microsoft Corp, Google parent Alphabet Inc and Facebook Inc when they report earnings next week.
"Until we get out of this information vacuum the market is going to be generally directionless," he said.
"All that really matters moving forward is what are those big tech earnings next week?"
During the session, the S&P 500 healthcare sector hit a fresh record high while industrials were the biggest gainers.
American Airlines Group Inc and Southwest Airlines Co reported smaller than expected quarterly losses, signalling a revival in travel demand.
Both stocks fell, with American down 4.5 per cent and Southwest 1.6 per cent.
Investors welcomed data showing the number of people in the US filing new claims for unemployment benefits last week dropped to a fresh one-year low.
The Labor Department report suggested lay-offs were subsiding and expectations were rising for another month of blockbuster job growth in April.
The speedy US vaccination rollout has improved the economic outlook as people plan summer holidays and leisure spending but a surge in COVID-19 cases in India and elsewhere in Asia has kept investors anxious, Hayes said.
Equities have likely reached a near-term top as expectations are too high, said Randy Frederick, vice president of trading and derivatives at Charles Schwab.
"There's going to be continued positive moves throughout the remainder of the year but we are due for some sort of a pullback in the very short term," he said.
"Then the dip buyers will step back in."
First-quarter earnings are expected to increase 31.9 per cent from a year ago, the highest rate since the fourth quarter, according to IBES Refinitiv data.
All 11 S&P 500 sectors closed lower as Microsoft, Apple Inc, Amazon.com Inc and Tesla Inc weighted the most on the downdraft.
The Dow Jones Industrial Average fell 0.94 per cent to 33,815.9, the S&P 500 lost 0.92 per cent at 4,134.98, and the Nasdaq Composite dropped 0.94 per cent to 13,818.41.
Volume on US exchanges was 10.35 billion shares, compared with the 10.32 billion full-session average over the last 20 trading days.
AT&T Inc beat Wall Street revenue targets as the US economic reopening following pandemic-linked restrictions boosted smart phone sales and the media business.
AT&T shares rose 4.2 per cent.
Biogen Inc beat quarterly profit estimates on stronger than expected sales for its muscle wasting disorder drug though concerns over its reliance on its yet-to-be approved Alzheimer's therapy, aducanumab, weighed on shares.
Biogen shares fell 4.0 per cent.
Declining issues outnumbered advancing ones on the NYSE by a 1.57-to-1 ratio; on Nasdaq, a 1.04-to-1 ratio favoured decliners.
The S&P 500 posted 84 new 52-week highs and no new lows; the Nasdaq Composite recorded 86 new highs and 20 new lows.