U.S. stocks closed lower on Monday, failing to hold Friday's records, as investors eyed earnings and looked ahead to the beginning of the two-day Federal Reserve meeting on Tuesday. (Tweet This)
"I don't think it's a new pattern because we were used to the S&P getting near highs then pulling back," said Art Hogan, chief market strategist at Wunderlich Securities. "Health care has outperformed everybody else. ...Rather than a market meltdown, it's profit taking on a high-flying momentum group."
The Nasdaq reversed to trade mildly lower around noon as biotech stocks lagged. The iShares Nasdaq Biotechnology ETF (IBB) fell more than 4 percent to near its 50-day moving average. Health care was the greatest decliner in the S&P 500, with the S&P Biotech ETF falling more than 5.5 percent.
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"It's all about earnings today," said Doug Cote, chief market strategist at Voya Investment Management. "Biotechs are purely a volatile sector of the market."
"The fact that they broke off negotiations—obviously that's impacting the market here," said Peter Cardillo, chief market economist at Rockwell Global Capital.
The Dow Jones industrial average attempted to hold gains but traded mostly lower as Pfizer and UnitedHealth declined about 2 percent to be among the greatest laggards.
"The theme throughout this year is that equity markets had difficulty sustaining new highs," said Anthony Valeri, investment strategist at LPL Financial. He noted pressure from lingering concerns about half of companies missing on revenue, and the possibility that tepid first quarter growth could continue into the rest of the year.
Earnings season continues this week, with Apple after the bell. The stock pared gains after earlier trading about 2 percent higher. Visa and health care names such as Gilead Sciences are among those reporting in the next few days.
Apple closed up 1.80 percent, recovering some early losses, ahead of its fiscal second-quarter report. TD Ameritrade's chief strategist JJ Kinahan noted that options were pricing a 4.8 percent move in the stock on Monday.
The Street expects the Cupertino, California-based powerhouse to deliver earnings of $2.16 per share on revenue of $56.06 billion, according to analysts' estimates from Thomson Reuters. That's a 30 percent and 23 percent increase year over year, respectively.
And while Wall Street will be watching iPhone sales, investors will also be listening for an update on Apple's capital return program.
In the last few weeks, stocks have trended higher despite the impact of the strong dollar and marked revenue misses on already lowered estimates.
"It appears that as if a lot of the bad news is now incorporated," said Maris Ogg, president of Tower Bridge Advisors. "Most of the big issues that are causing earnings shortfalls and revenue shortfalls are being taken in stride. This probably is the pivotal week to see. I think we adjust ourselves to higher valuations."
Earlier, stocks extended gains from last week with the S&P hitting a new intraday high on Monday, surpassing the 2,120.92 intraday level set last week. The S&P 500 and Nasdaq closed at records on Friday.
"Sometimes new highs beget new highs," Mark Luschini, chief investment strategist at Janney Montgomery Scott, said of the early gains. As investors watch the breakthrough of psychological resistance levels, they realize "it's still safe."
The Federal Reserve Open Market Committee meets on Tuesday and Wednesday, with the conclusion and post-meeting statement due Wednesday.
"You may see some muted trading with the Fed meeting this week," Kinahan said, noting a trend of little action for the week until the release of the Fed statement.
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The recent string of weak data and first-quarter growth expected at around 1 percent has convinced many in the markets that the Fed will not raise interest rates until September at the earliest.
"The post-meeting statement might well take a slightly more dovish tone than of late, further supporting our view that the first rate hike will take place no sooner than September," said Chris Scicluna, executive director and head of economic research, at Daiwa Capital Markets Europe.
Before the bell, major earnings on Monday included Canon and Restaurant Brands.
Restaurant Brands International, the parent of Burger King and Tim Hortons, reported that first-quarter revenue more than doubled compared with the fourth quarter of 2014, helped by product launches and promotions.
In economic news, U.S. services sector expansion eased slightly in April from a seven-month high in March on a dip in new business growth, but the pace of hiring in the sector accelerated to its highest since last June, an industry report showed on Monday.
Financial firm Markit said its "flash,'' or preliminary, reading of its Purchasing Managers Index for the services sector slipped to 57.8 in April from a final reading of 59.2 in March, which had been the highest level since August.
The major economic report for the week is the initial read on first quarter GDP.
Still, Janney's Luschini said investors will probably "look through the report" as other data already indicate impact from weather and the West Coast port shutdown. That sets up expectations for a better second quarter that could support a rate hike if the other data is strong enough, he said.
DuPont shares jumped more than 4 percent on news that Institutional Shareholder Services recommended activist investor Nelson Peltz be on the company's board.
The closed down 8.77 points, or 0.41 percent, at 2,108.92, with materials leading three advancing sectors and health care the greatest laggard.
The Nasdaq closed down 31.84 points, or 0.63 percent, at 5,060.25.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 13.
The U.S. 10-year Treasury yield was 1.92 percent. The U.S. dollar held steady and the euro traded just under $1.09.
About two stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 732 million and a composite volume of 3.3 billion in the close.
Crude oil futures settled down 16 cents, or 0.28 percent, at $56.99 a barrel on the New York Mercantile Exchange.
Gold futures closed up 2.4 percent at $1,203.20, the largest percentage gain since Jan. 15. The Gold ETF (GLD) had its best day since Jan. 30.
In Europe, equities turned higher after Greece reshuffled the team negotiating with the euro zone.
Shares of Deutsche Bank slipped about 5 percent after the bank announced an overhaul of its banking operations on Monday.
Greece was also told at the weekend meeting in Latvia that it would not receive any more aid until it agrees an economic reform plan.
—Reuters and CNBC's Cadie Thompson, Holly Ellyatt and Matt Clinch contributed to this report.
On tap this week:
Earnings: Apple, Tenneco, Restaurant Brands Intl, Crane, United Health Services, AvalonBay, General Growth Properties, Hartford Financial, PartnerRe, The Container Store, Olin, WR Berkley, Rent-A-Center, Roper, American Financial Group, Canon
Fed meeting starts
Earnings: BP, Bristol-Myers, Merck, Pfizer, Ford, Honda Motor, Total, Aetna, Twitter, Kraft Foods, UPS, GoPro, Express Scripts, Western Digital, Panera, Yamana Gold, US Steel, Kaiser Aluminum, Corning, Cummins, Owens-Illinois, Supervalu, Penske Auto Group, JetBlue, Genworth Financial, Buffalo Wild Wings, Applied Micro, Samsung Electronics, Aflac, AK Steel, Parker Hannifin
9 a.m.: S&P/Case-Shiller
10 a.m.: Consumer confidence, housing vacancies
1 p.m.: $35 billion 5-year notes
Earnings: Deutsche Bank, Fiat Chrysler, Northrop Grumman, General Dynamics, Hess, Starwood, Brunswick, Carlyle Group, Spirit Airlines, Norfolk Southern, Southern Co, Time Warner, Garmin, GrubHub, International Paper, Thomson Reuters, MasterCard, Marriott, Whiting Petroleum, Williams Cos, Boston Beer, Cabot, Murphy Oil, Baidu, Vertex, Yelp, Shutterfly, LaQuinta, Goodyear
8:30 a.m.: Q1 GDP, pending home sales
1:00 p.m.: $29 billion 7-year notes
2:00 p.m.: FOMC statement
Earnings: ExxonMobil, ConocoPhllips, Royal Dutch Shell, Sanofi, Statoil, BNP Paribas, Visa, AIG, LinkedIn, Colgate-Palmolive, Celgene, Delphi Automotive, Air Products, Cigna, Cardinal Health, Sony, Time Warner Cable, Teva Pharma, Viacom, Beazer Homes, First Solar, FireEye, Dreamworks Animation, Healthsouth
8:30 a.m.: Initial claims, personal income/spending, employment cost index, Fed Gov. Daniel Tarullo
9:45 a.m.: Chicago PMI
Earnings: Chevron, CVS Health, Aon, Calpine, Clorox, Moody's, Newell Rubbermaid, Duke Energy, Weyerhaeuser, TransCanada, VF Corp, Madison Square Garden, Legg Mason, CBOE
8:30 a.m.: Cleveland Fed President Loretta Mester
9:45 a.m.: Manufacturing PMI
10 a.m.: ISM manufacturing, construction spending, consumer sentiment
3:45 p.m.: San Francisco Fed President John Williams
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