The S&P 500 dropped 2% on Tuesday as investors took profits following a warning from the top U.S. infectious disease expert that premature moves to reopen the nation's economy could lead to novel coronavirus outbreaks and set back economic recovery.

The index suffered its first decline in four sessions as investors weighed the potential for a second wave of virus infections against hopes that easing of stay-at-home restrictions could ignite a recovery in the U.S. economy, which has been severely damaged by the virus.

Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, told Congress that the virus, which has already killed 80,000 Americans, was not yet under control and that there would not likely be a treatment or vaccine in place by late August or early September.

"There is a real risk that you will trigger an outbreak that you may not be able to control and ... could even set you back on the road to try to get economic recovery," Fauci said of premature steps.

And reports of new clusters of coronavirus infections in countries such as China, South Korea and Germany where lockdowns had been lifted appear to have added to worries.

Optimism about an economic recovery and massive stimulus measures have helped the S&P 500 climb about 34% to Tuesday's intraday high from the March 23 low of the pandemic-driven selloff.

"It goes back to science versus the Federal Reserve. The Federal Reserve has been supportive of the market ... What's going to win here?," said Phil Blancato, chief executive of Ladenburg Thalmann Asset Management in New York.

"From the science viewpoint if we open too quickly, we'll just go back to where we were. But if we don't open at all, we have this economic malaise."

With concerns about potential for declines, participants like Dennis Dick, proprietary trader at Bright Trading LLC in Las Vegas, were anxious to lock in their profits.

"People are very nervous about how the reopening is going to go," he said.

Wall Street's three major averages closed around their session lows. The Dow Jones Industrial Average fell 457.21 points, or 1.89%, to 23,764.78, the S&P 500 lost 60.2 points, or 2.05%, to 2,870.12 and the Nasdaq Composite dropped 189.79 points, or 2.06%, to 9,002.55.

The Cboe Volatility Index, known as Wall Street's fear gauge, ended 5.47 points higher at 33.04. It was the biggest one-day point gain for the VIX in more than three weeks.

Among the S&P's 11 major sectors, real estate was the biggest percentage decliner with a 4.3% drop.

Industrials and financials were the next biggest laggards with respective declines of 2.8% and 2.7%.

Tuesday's data showed that U.S. consumer prices dropped by the most since the Great Recession in April, due to a plunge in demand for gasoline and services including airline travel as people stayed home during the coronavirus crisis.

But prices for food consumed at home rose 2.6% in the largest advance since February 1974, leaving some investors anxious about the prospect of stagflation, if consumers cannot keep up with price increases for essentials.

"What happens if the cost of essential goods get more expensive and you're not earning enough money. That could become really problematic," said Ladenburg Thalmann's Blancato.

Helping to drag down the financial sector was a 7.8% drop in BlackRock Inc, after its top shareholder PNC Financial Services Group Inc said it planned to sell its entire 22% stake in the world's largest asset manager.

Online food delivery company GrubHub Inc surged 29% after a person familiar with the matter said Uber Technologies Inc was in advanced talks to buy the company in an all-stock deal.

Declining issues outnumbered advancing ones on the NYSE by a 2.91-to-1 ratio; on Nasdaq, a 2.65-to-1 ratio favored decliners.

The S&P 500 posted nine new 52-week highs and two new lows; the Nasdaq Composite recorded 91 new highs and 42 new lows.

On U.S. exchanges 11.28 billion shares changed hands compared with the 11.36 billion average for the last 20 sessions. 

GLOBAL STOCKS

World equity markets slid and safe-haven bonds climbed on Tuesday as rising concerns about a second wave of coronavirus infections outweighed stronger economic data from China and upbeat corporate earnings in Europe.

U.S. stocks dragged global equity benchmarks lower after Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, told Congress the virus was not yet under control and that there would not likely be a treatment or vaccine in place by late August or early September.

Stock markets have rebounded sharply in recent weeks as the spread of the novel coronavirus was curbed in the largest economies of Asia and Europe, while parts of the U.S. economy began to reopen after weeks of lockdowns.

"We have had a rally that has not been loved by everybody," said Hans Peterson, global head of asset allocation at SEB Investment Management. "That rally might continue for a while longer, but we have probably gone on to a bit of a consolidation phase for now," he said, as investors pause to assess how quickly the global economy can recover.

MSCI's gauge of stocks across the globe shed 1.31% following modest advances in Europe and slight losses in Asia.

"Investors are more focused on the path ahead than the economic damage from the wake of the COVID-19 pandemic," said Craig W. Johnson, technical market strategist at Piper Sandler & Co, referring to the disease caused by the new coronavirus.

"While the fundamental fallout is historic, expectations remain low, and the fiscal and monetary policy response has been unprecedented."

China reported its first rise in car sales in 22 months and the removal of tariffs on some U.S imports as part of a Phase One agreement to ease trade tensions with the United States.

In Europe, mobile operator Vodaphone beat earnings expectations and maintained its dividend while logistics group Deutsche Post said it saw business normalizing in Europe.

Safe-haven assets such as government bonds moved higher as investors edged away from riskier investments. Benchmark 10-year U.S. Treasury notes last rose 15/32 in price to yield 0.6795%, from 0.726% late on Monday.

Late on Monday, the Fed said it would start purchasing shares of exchange-traded funds that invest in bonds, though policymakers also downplayed the likelihood of interest rates being cut into negative territory.

Oil prices were boosted by an unexpected commitment from Saudi Arabia to deepen production cuts in June to help drain the supply glut caused by the coronavirus pandemic.

U.S. crude jumped 6.88% to $25.80 per barrel and Brent was at $30.03, up 1.35% on the day.