U.S. stocks closed lower Thursday, logging a third straight day of declines, as investor confidence dwindled ahead of a speech by Federal Reserve Chairwoman Janet Yellen.

Weekly data on Thursday showed first-time claims for jobless benefits rose 3,000 to 267,000, a level which continued to signal a healthy jobs market, while durable-goods orders were weak, falling 2% in August. New-home sales rose 5.7% in August to an annual rate of 552,000, topping forecasts.

The Dow Jones Industrial Average DJIA, +0.51% declined 78.57 points, or 0.5%, to close at 16,201.32, overcoming its earlier 264-point deficit. The Dow’s biggest decliner was Caterpillar Inc. CAT, +1.25% , which said it would cut 10,000 jobs by the end of 2018.

The S&P 500 index SPX, +1.05% fell 6.52 points, or 0.3%, to finish at 1,932.24, after being down as many as 30 points earlier in the session. Eight of the S&P 500’s sectors were in the red, led by a decline in the health care sector, which was down 1.2%.

Meanwhile, the tech-heavy Nasdaq Composite Index COMP, +1.71% shed 18.27 points, or 0.4%, to close at 4,734.48. Earlier in the session, the Nasdaq was off by as many as 83 points.

Even though stocks rebounded off their session lows, investors are reluctant to step up and buy the dips amid a general lack of confidence, said Robert Pavlik, chief market strategist at Boston Private Wealth. Many investors expect stocks to test lows set on Aug. 25, when the S&P 500 closed at just under 1,868, and the Dow finished at 15,666, he said.

“Everybody right now has become a technical analyst because this market action is not predicated on economic news, earnings, or overseas action,” Pavlik said. “There’s just a general lack of confidence and people are confused and when that happens, they don’t buy stocks.”

“People see smoke, they don’t see fire, but they run away,” Pavlik added.

Colin Cieszynski, senior market analyst at CMC Markets, told MarketWatch that the market has reached a turning point in which the expectation for a rate increase are no longer viewed as a negative and that worries about persistently low inflation and global growth have taken center stage.

Planned jobs cuts at Caterpillar, which has been struggling along with the mining and energy sectors, offer further signs that slumping commodity prices may be weighing on the Fed’s 2% target for inflation.

U.S. stocks finished in the red for a second straight session Wednesday, as a rally in crude oil fizzled out and the commodity closed at the lowest level in over a week. Oil prices CLX25, rebounded Thursday in choppy trade.

Investing for income with rates stuck at zero

In a heavily anticipated speech, Yellen will speak on inflation dynamics and monetary policy at the University of Massachusetts Amherst at 5 p.m. Eastern. Investors are looking for comments about last week’s policy meeting and the decision to leave interest rates on hold. But analysts don’t expect her to offer clues on the timing of a rate increase.

Stocks to watch: Caterpillar shares finished down 6.3% after the company announced its job-cut plans.

KB Home KBH, +4.03% shares closed up 1% after the home builder reported earnings and sales that topped expectations.

Elizabeth Arden Inc. US:RDEN shares finished flat after Standard & Poor’s cut the cosmetics company’s corporate rating.

Lockheed Martin Corp. LMT, +2.32% shares rose 1% after the defense contractor increased its share buyback authorization by $3 billion.

Activision Blizzard Inc. ATVI, +1.52% shares slipped 0.4% after touching their 52-week high.

Other markets:European stocks piled on losses, with the Stoxx Europe 600 index SXXP, +0.20% dropping 2.1%. The German DAX 30 index DAX, +0.41% slid nearly 2% as BMW AG BMW, +0.70% plunged 5% on a report that one of its cars sharply exceeds emission norms in a road test.

Martin Winterkorn resigned Wednesday as chief executive of Volkswagen AG VOW3, +0.14% US:VLKAY VOW3, +0.14% VOW3, +0.91% , which is engulfed in an emissions-fraud scandal. With the stock down about 25% for the week, it may be too early to bottom fish.

Japan’s Nikkei 225 index NIK, -0.19% returned from a three-day break to losses, closing down 2.8%.

The dollar USDNOK, +0.29% shot up 2% against the Norwegian krone on the heels of the Norwegian rate cut, but was tumbling against the euro EURUSD, -0.17% and the Japanese yen USDJPY, +0.17% .

— Barbara Kollmeyer in Madrid contributed to this article.