As of the close, trade volume across the exchanges was on pace for the second lowest trade volume day of the year so far.
“They’re not willing sellers and they’re not overly willing buyers,” said Robert Pavlik, chief market strategist at Boston Private Wealth.
“I think the underlying note of the day would be not wanting to be caught on the wrong side of the Fed,” he said.
The Federal Open Market Committee kicked off its two-day meeting Tuesday and is scheduled to release its statement and economic projections Wednesday afternoon. Fed Chair Janet Yellen is also due to hold a press conference.
The major averages came well off session lows in afternoon trade, with the Dow Jones industrial average recovering from a 108-point dip to close up about 22 points as Apple climbed.
The Nasdaq composite and S&P 500 closed slightly lower, with health care off 1.6 percent to lead S&P 500 decliners. The iShares Nasdaq Biotechnology ETF (IBB) ended 3.8 percent lower, its worst day since Jan. 13.
Apple closed about 2 percent higher after Morgan Stanley said it sees above-consensus iPhone demand of about 56.5 million units, with the strongest growth from China. Morgan Stanley is “overweight” the stock with a $135 price target.
Brian Blair, principal at Grays Peak Capital, said Apple’s gains today are “100 percent” related to Morgan Stanley’s note, especially since shares of key suppliers are trading higher.
“I do think it’s a fair assessment,” he said. “The Street has a pretty low bar for Apple units.”
The iPhone maker is also expected on Tuesday to submit its latest response to the U.S. Justice Department in its high profile encryption case.
Shares of Valeant Pharmaceuticals plunged 51 percent for its worst daily performance ever after the firm gave earnings and revenue guidance far below expectations.
“I would say Valeant’s certainly the biggest negative. Today’s trade is the death of price increases,” said Mike Bailey, director of research at FBB Capital Partners.
However, he said he would “not follow that line of thinking. If you have got a good product and not a lot of competition, you can take the price up.”
U.S. stocks opened lower as a decline in commodity prices weighed.
U.S. crude oil futures settled down 84 cents, or 2.26 percent, at $36.34 a barrel, its lowest settle since March 4 and its first two-day decline since mid-February. Copper also traded lower.
“Two bad days in a row for the commodities got people nervous again, clipping some gains,” said Jeremy Klein, chief market strategist at FBN Securities.
“People are wanting to see if (the Fed policymakers) have an intent to hike again in June,” he said.
Read MoreFed could trump data dump
As of the close Tuesday, futures were pricing in a 0 percent probability of a rate hike in March, and a 48 percent chance in June, according to CME’s FedWatch tool.
“Investors will probably not choose to be overly aggressive (Tuesday) and basically sit on the sidelines until we get the results of the FOMC meeting,” said Peter Cardillo, chief market economist at First Standard Financial.
In economic news, retail sales fell a less-than-expected 0.1 percent in February, but January’s figure was revised down to show a 0.4 percent decline versus the previously reported 0.2 percent increase.
Following the data release, Barclays cut its U.S. GDP forecast to 1.9 percent from 2.4 percent.
As of Tuesday, CNBC’s Rapid Update also showed a median estimate of 1.9 percent growth for the first quarter, while the Atlanta Fed’s GDPNow model was revised down to 1.9 percent from 2.2 percent last week.
U.S. producer prices fell 0.2 percent in February, but were unchanged over the last 12 months. That marked the first time since January 2015 that the year-on-year PPI did not decline, Reuters said.
In other economic reports, the NAHB Housing Market Index held steady at 58 in March.
Business inventories rose 0.1 percent in January.
The U.S. dollar index was a touch higher, with the euro near $1.1107 and the yen at 113.11 yen against the greenback.
Overnight, the Bank of Japan kept rates unchanged, as expected, but gave a gloomier view on the economy and exports in particular than it did in January.
European stocks ended loser, with the pan-European Stoxx 600 index falling 1.1 percent.
Asian stocks closed mostly lower, except for the Shanghai composite which eked out a gain of nearly 0.2 percent.
The S&P 500 closed down 3.71 points, or 0.18 percent, at 2,015.93, with health care leading six sectors lower and information technology the top gainer.
The Nasdaq composite closed down 21.61 points, or 0.45 percent, at 4,728.67.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded above 17.
About three stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 827 million and a composite volume of 3.5 billion in the close.
Gold futures for April delivery settled down $14.10 at $1,231.00 an ounce.
—CNBC’s Peter Schacknow and Reuters contributed to this report.