US equity indexes fell as investors weighed a slump in allocation to US equities in an influential Bank of America (BAC) survey with expectations from the Federal Reserve's rate-setting meeting that began Tuesday and industrial production increasing more than forecast.

The Nasdaq Composite sank 1.6% to 17,530.5, with the S&P 500 falling 1.1% to 5,611.2 and the Dow Jones Industrial Average trading 0.9% lower at 41,480.3 after midday Tuesday. All sectors fell intraday. Communications services, consumer discretionary, and technology, home to the so-called Magnificent-7 stocks, led the decliners after midday.

A closely monitored Bank of America (BAC) survey of global fund managers, with 171 participants polled in March, showed a 40-point drop in allocations to US equities month-over-month. The monthly slump is reportedly a record decline that strategists at the investment bank called a "bull crash."

Recent sharp declines in US equities pushing mainstream indexes into correction territory could extend into April due in part to the Magnificent-7 stocks slipping, Deutsche Bank said in a note. The seven stocks dropped 1.1% on Monday, led by a 4.8% decline in Tesla (TSLA) and a 1.8% retreat in Nvidia (NVDA).

The purchase of vehicles from Tesla to be used as taxis or for ride shares will no longer receive financial incentives from the city of Toronto because of growing trade tensions with the US, Reuters reported late Monday, citing Mayor Olivia Chow. Shares of Tesla slumped 4.3% intraday, among the worst performers on the S&P 500 and the Nasdaq.

Meanwhile, Amazon's (AMZN) Amazon Web Services is sharply undercutting Nvidia on price, providing rental servers powered by its Trainium chip that offers the same computing power as Nvidia's H100 chip at 25% of the cost, The Information reported Tuesday, citing a longtime AWS cloud customer. Nvidia's shares slid 1.4% intraday, among the steepest decliners on the Dow.

The two-day Federal Open Market Committee meeting starting Tuesday will most likely leave interest rates unchanged, as per the CME FedWatch tool, after accounting for the state of the labor market and inflationary pressures in the economy.

The markets know from the January FOMC minutes that the Fed is considering slowing or pausing the pace of quantitative tightening given "the potential for significant swings in reserves over coming months related to debt ceiling dynamics," according to a note from the Wells Fargo Investment Institute.

"The Fed's approach to quantitative tightening in coming months could carry significance for markets," Brian Rehling, head of global fixed income strategy, said in the note.

In economic news, US industrial production rose by 0.7% in February, compared with expectations for a 0.2% increase in a survey compiled by Bloomberg and a downwardly revised 0.3% increase in January.

Housing starts increased 11% to a seasonally adjusted annual rate of 1.5 million units in February from the prior month's revised print of 1.35 million units, the Census Bureau and the Department of Housing and Urban Development said. The latest data exceeded the 1.39-million-unit consensus in a survey compiled by Bloomberg, which would have marked a 1.4% increase from January's unrevised level.

"Hammered by unfavorable weather, housing activity showed a welcome recovery in February," a Stifel note said. "However, the pop in activity may prove short-lived as tariff uncertainty and unease appears to be curtailing permit growth."

Most US Treasury yields fell intraday, with the two-year rate down 2.2 basis points to 4.03% and the 10-year yield 2.9 basis points lower at 4.28%.

In company news, Alphabet's (GOOG, GOOGL) Google agreed to acquire cybersecurity startup Wiz in an all-cash deal worth $32 billion as the technology giant looks to bolster its cloud security operations.

West Texas Intermediate crude oil futures fell 1.1% to $66.83 a barrel.