U.S. stocks fell sharply on Tuesday after a Federal Reserve official said rate hikes might come sooner than expected and Staples and other retailers offered disappointing quarterly results.

"The thing I hear most is the question of whether the sharp downturn in interest rates signals underlying weakness in the economy that we haven't recognized. It focuses investors back on the fundamental reports, so when you get a bad retail sales number, you tend to take it more seriously," said Bruce McCain, chief investment strategist at Key Private Bank.

"We prepaid a lot of this year's earnings growth with the big run up last year, and the real results are sluggish enough so there is not enough to get into high gear as far as a rally goes," McCain added.

Equities fell to session lows after the Fed's Bank of Philadelphia President Charles Plosser said the central bank's current taper pace could be too slow if the economy improves as forecast.

"We paid attention to what might be different. In a vacuum of catalysts, the market looks for something to react to, so we had a knee-jerk reaction when we hear something different," said Art Hogan, chief market strategist at Wunderlich Securities, of the hawkish comments by Plosser.



"That would be a big concern, I don't think the market believes that, we thought we were safe until 2015," said Dave Richmond, president of Richmond Brothers, referring to comments Tuesday afternoon by Plosser in Washington.

The Russell 2000 Index dropped nearly 10 percent from its March record and the Chicago Board Options Exchange Volatility Index, a measure of investor uncertainty known as the VIX, rose 3.1 percent.

Staples projected a drop in sales in the current quarter, with shares of the office supply retailer falling sharply. Urban Outfitters also fell after its quarterly report, along with Dick's Sporting Goods.

"Not only did they miss on earnings, but they lowered guidance. In the absence of any other obvious news, there is still a lack of decisive evidence that the economy is going to show a sustained gain," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

Home Depot reported first-quarter earnings below estimates, with the home improvement chain's spring selling season off to a slow start after a harsh winter in many parts of the nation. Shares of the company gained, however, as it hiked its full-year earnings forecast and said it intends to buy back as much as $3.75 billion additional shares this year.



Read MoreHome Depot misses forecasts, hurt by slow season