After data showed some softening in the labour market, housing, and a gauge of business outlook, stocks fell and bonds rose. Traders also continued to sift through corporate earnings reports and Federal Reserve speakers' remarks.

The tech-heavy Nasdaq 100 underperformed, with Tesla down about 10% after signalling that it will continue to cut prices to stimulate demand, despite the fact that markdowns have taken a significant toll on profitability. The S&P 500 fell ahead of Friday's options expiration. The Cboe Volatility Index has ended a six-day losing streak.

The policy-sensitive two-year yield fell 10 basis points to 4.14%. The dollar fell against the majority of its developed-market peers.

Fed's Mester, President of the Federal Reserve Bank of Cleveland, expressed support for another rate hike to combat inflation while warning that recent bank stress could crimp credit and dampen the economy. Lorie Logan, her Dallas counterpart, said inflation has been "much too high," while outlining measures to watch.

Recurring unemployment benefit claims reached their highest level since November 2021, adding to evidence that the labour market is losing steam. Sales of previously owned homes fell more than expected in March, highlighting a housing market that remains shaky despite some signs of improvement. Mortgage rates in the United States increased for the first time since early March.