U.S. stocks retreated on Tuesday and the Dow dropped for a ninth straight session, as investors exercised caution ahead of the Federal Reserve's last policy announcement of the year after economic data indicated consumer spending remained solid.

U.S. retail sales increased more than expected in November, buoyed in part by an acceleration in motor vehicle purchases, consistent with strong underlying momentum in a resilient economy.

Investors were largely focused on the Fed's policy announcement on Wednesday, almost completely pricing in an interest rate cut of 25 basis points.

Of particular attention will be the Fed's summary of economic projections (SEP), which may indicate how aggressive the U.S. central bank will be in cutting rates in 2025.

The Fed may slow its easing in an economy that appears to have solid momentum and sticky inflation, and as the incoming Trump administration is expected to impose policies to stimulate growth and potentially reignite rising prices.

"This is just kind of standard fare for a pre-Fed day market where you have just a little bit of uncertainty, people are not sure how to position ahead of the SEP and ahead of Powell," said Jason Ware, chief investment officer at Albion Financial Group in Salt Lake City, Utah.

"Everyone knows we're getting 25 bps ... what Powell is going to say at the press conference, what the SEP is going to tell us, those things people are not quite sure of so you have a little bit of jitters ahead of that."

According to preliminary data, the S&P 500 lost 23.53 points, or 0.39%, to end at 6,050.55 points, while the Nasdaq Composite lost 66.54 points, or 0.33%, to 20,107.35. The Dow Jones Industrial Average fell 272.77 points, or 0.62%, to 43,445.23.

While the Nasdaq hit a record high on Monday and the S&P 500 is up nearly 27% on the year, the Dow has struggled recently and suffered its ninth straight daily decline, its longest losing streak since February 1978.

Treasury yields oscillated between gains and losses on the day as investors braced for a "hawkish cut" from the Fed.

Nearly all of the 11 major S&P sectors were lower on the day, led by a drop in industrials. Consumer discretionary was the sole advancer, lifted by a gain in Tesla (NASDAQ:TSLA) after Mizuho (NYSE:MFG) hiked its price target on the stock by $285 to $515. Wedbush also hiked its price target on the electric vehicle maker to $515 on Monday.

The CBOE Volatility Index, Wall Street's "fear gauge," rose above 15 for the first time in nearly three weeks, and the small-cap Russell 2000, seen as more sensitive to higher interest rates, dropped roughly 1%.

Pfizer (NYSE:PFE) advanced after the drugmaker forecast 2025 profit roughly in line with Wall Street expectations.