The Dow Jones Industrial Average fell 27 points, snapping a three-day winning streak. The S&P 500 slipped 0.2 percent and also The Nasdaq Composite also climbed 0.1 percent.
The South China Morning Post reported White House advisor Peter Navarro would be attending the dinner between President Donald Trump and Chinese leader Xi Jinping in Buenos Aires at the G-20. CNBC later confirmed Navarro's attendance. Stocks fell to their lows of the day on the news, with the Dow briefly losing more than 160 points.
News of his attendance dampened hopes that a trade deal could be hatched at the dinner given his longstanding hawkish tone on U.S.-China trade. Earlier this month, Navarro said any deal between the U.S. and China would be on Trump's terms, not Wall Street's. These comments were later disavowed by Larry Kudlow, director of the National Economic Council.
"This is not good news. Remember Navarro's book 'Death by China'? You don't want him anywhere near the meeting," said Andrew Brenner of National Alliance.
Trading in U.S. stocks became even more volatile after Dow Jones reported, citing sources, the U.S. and China were looking into a deal to de-escalate trade tensions.
The U.S. has implemented tariffs on billions of dollars worth of Chinese goods this year. China has responded with tariffs of its own on U.S. goods. The ongoing spat has sent ripples across financial markets as investors assess its impact on corporate earnings and the economy.
The White House did not immediately return an email requesting comment.
The major averages rose after a summary from the Federal Reserve's most-recent meeting showed some officials think the federal funds rate could be "near its neutral level," possibly signaling fewer rate hikes down the road. The minutes came after Fed Chairman Jerome Powell said he considers the central bank's benchmark interest rate to be close to a neutral level, which marks a step away from comments made in recent months. His remarks sent stocks surging, with the Dow posting its second-best day of the year.
"This is perhaps an overreaction to what was hardly a binding promise to reconsider the path of future rate rises, but at the very least it did remove any possibility of a more aggressive policy being signaled at the December meeting, and opened up the possibility of a pause or halt to rate hikes taking place in the first half of 2019," said Michael Shaoul, chairman and CEO of Marketfield Asset Management.
Robert Pavlik, chief investment strategist at SlateStone Wealth, said: "Powell's comments were the bandage the sleigh needed. Now you have to get the sleigh back in the air so Santa can deliver those presents. That's what this weekend is all about." He added positive news on trade "would set us up for a Santa Claus rally."
Shares of Dick's Sporting Goods fell about 6.6 percent after J.P. Morgan downgraded them to neutral from overweight. "Said succinctly, while we see the topline story improving from here, ... we find the risk-reward less appealing," the bank said in a note.
Boeing's stock bucked the negative trend, rising 2.2 percent after Cowen named it its No. 1 aerospace stock for 2019, noting: "It would take a sharp economic slowdown to disrupt the favorable current production outlook."
— CNBC's Patti Domm , Alexandra Gibbs and Jeff Cox contributed to this report.