The Dow Jones Industrial Average fell 199.90 points, or 0.59 percent, to 33,562.86. The S&P 500 dipped 8.58 points, or 0.20 percent, to 4,273.79. The Nasdaq Composite Index declined 11.34 points, or 0.09 percent, to 13,229.43.
Seven of the 11 primary S&P 500 sectors ended in red, with industrials and energy leading the laggards by losing 0.71 percent and 0.58 percent, respectively. Meanwhile, communication services and utilities led the gainers by rising 0.58 percent and 0.45 percent, respectively.
U.S. Stocks have rallied in recent sessions on the removal of fears about a U.S. debt default. President Joe Biden signed one bipartisan legislation into law on Saturday that suspends the debt ceiling until Jan. 1, 2025. The move took place just before the federal government was set to run out of cash to pay all of its obligations, and helped avert a catastrophic U.S. default that could have caused a financial crisis.
Investors are weighing the implications of the debt ceiling bill on liquidity, however, with concerns that the Treasury Department's need to replenish cash might drain liquidity from the financial system.
This expected burst of Treasury bill (T-Bill) issuance could have consequences for liquidity in other markets, depending on who buys them. Money market funds would normally be the primary buyers but would likely require higher yields, which would add to the challenge of a high cost of funding facing the regional banking system, said Vishwanath Tirupattur, global director of fixed income research with Morgan Stanley.
"On the other hand, if other investors were to buy the T-Bills, they would need to do so using funds invested in other assets, which could drain liquidity in the system for those assets. Either way, the risk of heightened market volatility looms large," said Tirupattur, in an analysis published on Monday.
U.S. Stocks retreated in late afternoon trading on Monday, with Apple shedding earlier gains that brought shares to an all-time high. The technology giant on Monday unveiled its highly anticipated virtual reality headset.
Investors are also refocusing on the tight labor market, as well as the latest economic data, both of which could have an impact on the Federal Reserve's monetary policy when it concludes a two-day meeting on June 14. The Fed is widely expected to leave interest rates unchanged in June, but its moves for the rest of the year remain up in the air.
The Institute for Supply Management (ISM) reported Monday that its services purchasing managers' index (PMI) fell to 50.3 in May from 51.9 in April, lower than market expectations of 51.8.
The sharp fall in the U.S. ISM services PMI is a sign that credit conditions and the drawdown of pandemic savings are finally hitting services activity. Further evidence will be wanted by the Fed but the trend has been declining and combined with other data, policymakers may now be hopeful that its aggressive tightening cycle is having an impact, said Craig Erlam, senior market analyst at OANDA, a supplier of online multi-asset trading services.
Meanwhile, the seasonally adjusted final S&P Global U.S. Services PMI Business Activity Index registered 54.9 in May, up from 53.6 in April and broadly in line with the earlier released "flash" estimate of 55.1, according to S&P Global.
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