Stocks fell on Tuesday as trade tensions between the U.S. and key partners increased to start off the one of the toughest parts of the year for equity investors.

The pulled back 0.2 percent to close at 2,896.72 with telecom and real estate lagging. The Nasdaq Composite dipped 0.2 percent to 8,091.25, led by a decline in Facebook shares, which counterbalanced a gain in Amazon that made it the second U.S.-company to reach $1 trillion in market cap. The Dow Jones Industrial Average slipped 12.34 points to 25,952.48 as Nike and Verizon lagged.

Last week, the U.S. and Canada failed to secure an agreement to replace the current NAFTA pact by last Friday's deadline. While a deal has been arranged with Mexico, President Donald Trump tweeted over the weekend that there was "no political necessity to keep Canada in the new NAFTA deal."

Trump added that Congress shouldn't intervene in the talks, and claimed that if it did, he would "simply terminate NAFTA entirely." Trade talks with Canada are however expected to reignite this week.

Tweet

Meanwhile, a Bloomberg report last week suggested that the U.S. administration was on standby to inflict additional levies on $200 billion worth of Chinese goods as soon as this week. In an interview with the same media outlet, Trump warned that he would consider removing the U.S. from the World Trade Organization (WTO) if it doesn't "shape up."

The Dow fell as much as 158.87 points before paring losses. The S&P 500 and Nasdaq declined as much as 0.6 percent and 0.8 percent, respectively.

"When you have that kind of rhetoric at the same time you have a murky month for the market, this is what happens," said Peter Cardillo, chief market economist at Spartan Capital Securities.

Shares of trade-sensitive Caterpillar dropped nearly 0.7 percent.

European equities fell broadly as well. The Stoxx 600 index dropped 0.7 percent while the German Dax pulled back 1 percent. Asian stocks were mixed, however, as Chinese markets rose while Japanese shares slipped.