United States stocks slipped, extending Friday's steep declines, as investors tried to determine what Federal Reserve policy moves could be on the horizon.
The Dow Jones Industrial Average slipped 49.71 points, or 0.3%, to 15,401.38 points.
The S&P 500 index lost 8.07 points, or 0.5%, to 1,701.84 points.
The Nasdaq Composite Index lost 9.44 points, or 0.3%, to 3,765.29 points.
Stocks rallied strongly last Wednesday after the Fed surprised investors with a decision to keep its bond-buying program intact, rather than trim some of its purchases of Treasurys as expected. But since then, both the Dow industrials and S&P 500 have shed all of those gains.
"People are thinking that not much has changed after all," OppenheimerFunds chief investment officer Art Steinmetz said.
Now, investors are wondering about the central bank's next move as they approach the end of the quarter, which has seen a 6% gain in the S&P 500.
"If [a cut to bond purchases] is not in September or October, it's going to be in December, or February," said Mr. Steinmetz. "It's coming."
But he doesn't think that a withdrawal of Fed stimulus will mean doom for stocks, because he expects growth to pick up in coming months.
"I think the economy will support" further gains for stocks, he said.
One Fed official said Monday that the economy wasn't strong enough for the Fed to cut back on its easy-money policies. William Dudley, president of the Federal Reserve Bank of New York, said that the pace of improvement is insufficient, and too uncertain for the Fed to pull back now.
Traders said Monday's selling was subdued compared to Friday's steep declines, which came as four types of options and futures contracts expired.
Jonathan Corpina, senior managing partner with brokerage firm Meridian Equity Partners Inc., said that he didn't see investors rushing for the exits. Instead, he said, they were "trying to figure out where we are" after the Fed's decision threw markets for a loop.
"The fact that most people were caught off guard meant that they weren't positioned accordingly," said Mr. Corpina. "People are starting to say, 'wait a second, we might have overreacted here.'"
But Linda Duessel, equity-market strategist at Federated Investors said that she expects economic growth to pick up at the end of this year and into next year, which should mean good things for the stock market.
"We're really bullish as we make our way into next year," she said. And with "the Fed's decision to keep the money free and easy...it's all-clear for stocks."
One lingering concern for investors is the possibility of nasty budget negotiations in Congress. Ms. Duessel thinks the S&P 500 could see declines between 5% and 7% over the next month as the debate picks up.
"A battle is probably going to happen," Ms. Duessel said.
But the firm expects the index to end the year between 1,700 and 1,750. So while she thinks "stocks are no longer cheap," she recommends investors buy stocks if benchmarks pull back.
Treasurys continued to gain after last week's surprise Fed decision. The yield on the 10-year Treasury note fell to settle at 2.714% from 2.735%, where it settled Friday.
European markets slipped. The Stoxx Europe 600 was down 0.5% as investors found few surprises in the weekend election results in Germany. Angela Merkel looks set to win a third term as Germany's chancellor, but she will need to form a new coalition after her Christian Democratic Union fell short of an absolute majority in the Bundestag, Germany's lower house of parliament. Germany's DAX 30 index closed 0.5% lower.
Meanwhile, Markit's preliminary September composite purchasing-managers index for the euro zone rose to 52.1 from 51.5 in August, topping expectations of 51.9. Strength in the service sector helped offset a slight deceleration in manufacturing. Readings above 50 signal expansion.
In Asia, China's Shanghai Composite rallied 1.3% after HSBC's preliminary manufacturing PMI for September rose to a six-month high of 51.2 from August's 50.1. Japan's market was closed for a holiday.
Crude-oil futures slipped 1.1% to settle at $103.59 a barrel after shedding 3.3% last week. Gold futures lost 0.4% to settle at $1,326.90 a troy ounce. The September contract had slumped 2.7% on Friday, but still closed up 1.8% last week. The dollar declined against the yen but edged higher against the euro.
In corporate news, Apple Inc. shares rallied 5%. The tech heavyweight said it sold a record nine million of its latest iPhone models in their first three days in stores, and said its fourth-quarter sales would be near the high end of its previous forecast.
BlackBerry Ltd. shares rose 1.1% on news that the company had agreed to be taken private for $9 a share by a consortium including prominent investor Fairfax Financial Holdings. On Friday, the smartphone maker tumbled 17% after it projected a wider-than-expected fiscal second-quarter loss and said it would cut 4,500 jobs as part of a restructuring.
Citigroup Inc. fell 3.2% after the Financial Times reported the bank anticipates a large drop in trading revenue amid a slowdown in trading activity.
Dow component General Electric Co. rose 1.1% after its chief executive told Barron's that it has the biggest backlog of new business in its history. GE also said it signed a contract to supply turbines for power plants in Algeria.