Wall Street's main indexes closed slightly lower Tuesday, as investors awaited direction from the latest earnings from Alphabet and Tesla.

The duo are set to kick off results from the so-called Magnificent Seven stocks after markets close. While the electric vehicle maker's dropped, the Google parent's shares were up.

Earnings from technology giants will be key in determining if 2024's record rally can be sustained, or if U.S. stocks are overvalued. The question of whether a rotation away from megacaps in favor of underperforming sectors will continue is also on investors' minds.

The small-cap Russell 2000 was up on the day.

"We're paying attention to earnings, as that's what matters this week and next, and the price reaction to those earnings will be very telling," said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers.

On the rotation into smaller-cap stocks, he added: "The jury is still out and we need some more proof of evidence that this is sustainable, and that's again going to come down to earnings."

The megacaps initially buoyed markets on Tuesday, with all three benchmarks trading in positive territory. However, despite many of the megacaps continuing to trade higher, including Apple and Amazon.com, the overall market advances ebbed away in the afternoon.

Helping subdue equity markets were disappointing earnings from household names.

United Parcel Service, seen as a bellwether for the global economy, slumped after missing earnings estimates on subdued package delivery demand and higher labor-contract costs.

General Motors dropped despite a second-quarter results beat and a higher annual profit forecast, while Comcast lost ground after missing revenue estimates.

NXP Semiconductors slumped after forecasting third-quarter revenue below estimates, dragging the Philadelphia SE Semiconductor index lower.

Among others, Spotify jumped after posting a record quarterly profit slightly ahead of expectations, while Coca-Cola rose after it increased its annual sales and profit forecasts,

Of the 74 S&P 500 companies that have reported quarterly results during this earnings season, 81.1% have beaten expectations, according to LSEG data available on Monday.

Janasiewicz cautioned that while it is early to draw specific conclusions, the pattern seen so far in the earnings season was that companies missing numbers were getting hit hard, while even outperforming doesn't guarantee much of a pop in your stock, given where market prices and expectations are currently.

"If you miss based on where we are right now, maybe there's going to be more punishment doled out," he said.

According to preliminary data, the S&P 500 lost 9.22 points, or 0.17%, to end at 5,555.19 points, while the Nasdaq Composite lost 8.59 points, or 0.05%, to 17,998.98. The Dow Jones Industrial Average fell 55.71 points, or 0.14%, to 40,359.73.

Economic data due to release this week includes the Personal Consumption Expenditures Price Index, the Fed's preferred inflation gauge, which will be crucial in gauging the monetary policy outlook against a backdrop of the recent inflation downtrend and signs the labor market is easing.

Bets of a 25-basis-point interest-rate cut by September have shot up to nearly 94%, from nearly 60% last month, according to CME's FedWatch Tool.

A Reuters poll showed the Fed is expected to cut rates twice this year, in September and December. The central bank's policymakers have said that resilient consumer demand warrants a cautious approach, despite easing inflation.