New York: US stocks fell on Tuesday, retreating from last week’s rally on the “fiscal cliff" deal in Washington, as companies started to report results for the fourth quarter.

After a 4.3% jump in the two sessions around the close of the fiscal cliff negotiations, the S&P has declined a bit, with investors finding few catalysts to extend the rally that took the benchmark to five-year highs.

“We had a brief respite, courtesy of what happened on the fiscal cliff deal and the flip of the calendar with new money coming into the market," said Bucky Hellwig, senior vice-president at BB&T Wealth Management in Birmingham, Alabama.

Shares of AT&T Inc. dropped 1.7% to $34.35, making it one of the biggest drags on the S&P 500, after the company said it sold more than 10 million smartphones in the quarter.

This figure beat the same quarter in 2011, but also means increased costs for the wireless service provider. Providers like AT&T pay hefty subsidies to handset makers so that they can offer discounts to customers who commit to two-year contracts.

Fourth-quarter profits are expected to beat the previous quarter’s lacklustre results, but analyst estimates are down sharply from October. Quarterly earnings are expected to grow by 2.7%, according to Thomson Reuters data. Dow component Alcoa, the largest US aluminium producer, reported results after the closing bell.

The Dow Jones industrial average dropped 55.44 points, or 0.41%, to 13,328.85. The Standard & Poor’s 500 Index fell 4.74 points, or 0.32%, to 1,457.15. The Nasdaq Composite Index lost 7.01 points, or 0.23%, to 3,091.81.

“The stark reality of uncertainty with regard to earnings, plus the negotiations on the debt ceiling, are there and that doesn’t give investors a lot of reason to take bets on the long side," Hellwig said.

With AT&T’s fall, the S&P telecom services index was the worst performer of the 10 major S&P sectors, down 2.7%.

Sears Holdings shares dropped 6.4% to $40.16 a day after the company said chairman Edward Lampert would take over as CEO from Louis D’Ambrosio, who is stepping down due to a family member’s health issue. The US retailer also reported a 1.8% decline in quarter-to-date sales at stores open at least a year.

Markets went lower as some of the first reported earnings were weak.

“It doesn’t seem to be bouncing back, it might stay here or sell off a little further," said Stephen Carl, head of US equity trading at The Williams Capital Group in New York.

Shares of restaurant-chain operator Yum Brands Inc fell 4.2% to $65.04 a day after the KFC parent warned sales in China, its largest market, shrank more than expected in the fourth quarter.

GameStop was one of the worst performers on the S&P 500 as shares slumped 6.3% to $23.19 after the video game retailer reported low customer traffic for the holiday season and cut its guidance.

Shares of Monsanto Co gained 2.5% to $98.42 after reaching a more than four-year high at $99.99. The world’s largest seed company raised its earnings outlook for fiscal year 2013 and posted strong first-quarter results.

Volume was below the 2012 average of 6.42 billion shares traded per day, as 6.19 billion were traded on the New York Stock Exchange, NYSE MKT and Nasdaq.

Declining stocks outnumbered advancing ones on the NYSE by 1,495 to 1,458, while on the Nasdaq decliners beat advancers 1,305 to 1,158.