The Dow Jones Industrial Average sank 205.49 points, or 0.77 percent, to close at 26,379.28. The S&P 500 was down 20.97 points, or 0.65 percent, to 3,218.44. The Nasdaq Composite Index fell 134.18 points, or 1.27 percent, to 10,402.09.
Eight of the 11 primary S&P 500 sectors finished lower, with materials down 2.18 percent, leading the laggards. Real estate rose 2.05 percent, outperforming the others.
U.S.-listed Chinese companies traded mostly lower, with eight of the top 10 stocks by weight in the S&P U.S. Listed China 50 index ending the day on a downbeat note.
On the earnings front, 3M shares slid 4.85 percent on its lower-than-expected revenue and profit for the second quarter.
U.S. fast-food giant McDonald's also reported second-quarter earnings that missed expectations. The stock closed down 2.49 percent.
Meanwhile, investors remained cautious as U.S. lawmakers haven't settled their differences over the size and scope of the next COVID-19 relief bill.
Senate Republicans released their 1-trillion-dollar COVID-19 relief proposal Monday afternoon, which includes a reduction in federal unemployment benefits, another round of 1,200-dollar direct payments to individuals, and liability protection for businesses and schools.
The Senate Republicans' plan would slash extra weekly unemployment benefits from 600 dollars to 200 dollars, which could be a key sticking point in negotiations with Democrats, who have wanted to maintain the level of benefits through January.
Wall Street awaited a key announcement from the Federal Reserve.
The U.S. central bank kicked off its two-day policy meeting on Tuesday, followed by an interest rate decision on Wednesday.
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