U.S. stocks closed lower on Monday, giving back some of Friday's rally on the jobs report, as investors eyed gains in bond yields and awaited the week's data releases. (Tweet This)
"You've got a global selling of bonds, not sure of the largest catalyst there," said Art Hogan, chief market strategist at Wunderlich Securities. "The disarray in the bond market is causing disarray in the equity market."
The Dow Jones industrial average closed down 85.95 points, recovering from a brief 100-point drop. The other large-cap indices ended lower, with the Nasdaq below 5,000. The Russell 2000 held higher.
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There's "cautiousness as a result of traders watching rates back up to 2015 highs. That's certainly having a limiting effect on gains," said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management (U.S.). He noted the absence of major market-moving news and economic reports on Monday and Tuesday.
The U.S. 10-year Treasury yield gained to 2.27 percent. The 30-year bond yield topped 3.03 percent. The German 10-year bund yield rose to 0.62 percent.
"It's a relatively low volume trade. It's not capitulation as much as it is reluctance to stand in front of the move," Ian lyngen, senior treasury strategist at CRT said of the bond market movements.
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"We are challenging the high yield level seen last week and I think a basic concession ahead of the refunding auction doesn't explain it," he said. The Treasury auctions 3-year notes tomorrow, 10-years on Wednesday and 30-year bonds Thursday.
"The selloff in Treasurys is outpacing the selloff in bunds today," he said, adding that Mondays are notoriously low liquidity days.
But traders said many of the factors from last week were still at work, and the Treasury market selloff came after prices were lifted (and yields fell Thursday and Friday).
5-day performance of US Treasurys
Earlier, stocks traded narrowly mixed as the major indices attempted to hold gains.
Hogan noted that Monday's market movements marked the seventh time in 60 days that the S&P 500 attempted to break its closing high of 2,117.69.
The major averages surged more than 1 percent on Friday but failed to top records, with the S&P just 2 points shy of setting a new high.
"I don't know that we have any news that warrants (the S&P) going strongly higher today," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.
No major economic news or earnings reports are expected Monday. Retail sales and industrial production figures come out later in the week.
The dollar edged slightly higher, with the euro at $1.116. Oil held near recent highs.
"Now that we've gotten through earnings season, the most important numbers are economic-facing because that's what the Fed is looking at," said Maris Ogg, president of Tower Bridge Advisors. She said the Federal Reserve is confident in the economy and will most likely raise short-term interest rates this year.
The April employment report showed continued economic growth, but not strong enough for most analysts to expect an immediate rate hike.
Read MoreStocks could rally this week
"It was a number that fit whatever your outlook was," Luschini said.
San Francisco Federal Reserve President John Williams said on CNBC's "Squawk on the Street" that the employment report showed "good momentum" for the rest of the year. He also expects GDP to rebound from a weak first quarter.
Caterpillar gained 2 percent and Joy Global briefly rose more than 6 percent as both stocks were upgraded to "outperform" from "neutral" at Baird, saying the worst may be over for the commodity deflation cycle.
Cisco Systems spiked jumped more than 1.5 percent as one of the blue chip leaders. Pacific Crest upgraded the networking equipment maker to "overweight" from "sector weight," citing the beginning of a multi-quarter recovery driven by new product cycles.
"I think the post-labor data will still be the focus of attention," said Peter Cardillo, chief market economist at Rockwell Global Capital. "It's all about the global economy and the Greece talk."
Greece paid about 750 million euros to the International Monetary Fund on Monday, a day before it was due, two Greek finance ministry officials told Reuters on Monday.
The Eurogroup of regional finance ministers met on Monday and said in an official statement that it welcomed progress achieved in Greece's negotiations with its creditors for a cash-for-reform deal but said more work is needed to bridge differences holding up a comprehensive agreement.
European equities were mixed Monday, pausing after a rally on Friday, and overlooking the news that China has cut interest rates for the third time in six months.
The People's Bank of China (PBOC) announced the cut in its benchmark lending rate and one-year deposit rates by 25 basis points on Sunday, as growth in the Asian economic giant slowed to levels not seen since the global financial crisis.
The Dow Jones Industrial Average closed down 85.94 points, or 0.47 percent, at 18,105.17, with Caterpillar leading gains and Exxon Mobil the greatest decliner.
The closed down 10.77 points, or 0.51 percent,at 2,105.33, with energy leading all 10 sectors lower.
The Nasdaq closed down 9.98 points, or 0.20 percent, at 4,993.57.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 13.
Two stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 687 million and a composite volume of nearly 3 billion in the close.
Crude oil futures for June delivery settled down 14 cents, or 0.20 percent, at $59.25 a barrel on the New York Mercantile Exchange. Gold futures settled down $5.90 at $1,183.00 an ounce.
Nick Raich, CEO of The Earnings Scout, said stocks will remain in a trading range until companies begin to show strong revenue growth. The majority of companies that reported for the first quarter beat on earnings estimates but fewer than half beat on revenue.
Earnings expected after the bell include Rackspace and Surgical Care Affiliates.
Dish Network saw revenue rise 3.6 percent in its latest quarter, compared to a year ago, even though overall subscriber numbers dropped. The satellite TV operator now makes an average $86.01 per subscriber compared to $82.36 a year ago.
Actavis reported adjusted quarterly profit of $4.30 per share, above estimates of $3.93, with revenue also above Street forecasts on higher sales of its branded drugs in North America.
Rosetta Resources will be acquired by fellow energy producer Noble Energy in an all-stock transaction valued at $2.1 billion. Rosetta shareholders will receive 0.542 Noble shares for each share they now hold, an implied value of $26.62 per share.
Hilton Worldwide announced a 90 million share secondary offering, with the shares coming from stockholders affiliated with Blackstone Group. Hilton will not receive any proceeds from the offering.
Sotheby's reported adjusted quarterly profit of 7 cents per share, beating expectations for a breakeven quarter. Revenue also exceeded forecasts, as auction sales and commissions rose compared to a year earlier.
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Citigroup said it could plead guilty to an antitrust charge, resolving a U.S. Department of Justice investigation of the bank's dealings in foreign exchange markets, Reuters reported.
Goldman Sachs—The Wall Street Journal reported the firm is expected to pay $129.5 million to settle a lawsuit that accused several banks of foreign exchange market manipulation.
—Reuters and CNBC's Patti Domm and Peter Schacknow contributed to this report.
On tap this week:
Monday
Earnings: Ambac Fincl., MBIA, Mindray Medical Intl., Rackspace
Tuesday
Earnings: Allianz, EnCana, McKesson, Zillow, Voxeljet, Vivint Solar, International Flavors and Fragrances
9:00 am: NFIB small business survey
10:00 am: JOLTs
12:45 pm: San Francisco Fed's Williams on economic outlook
1:00 pm: $24 billion three-year note auction
2:00 pm: Federal budget
Wednesday
Earnings: Macy's, Cisco Systems, Shake Shack, Nissan, SAB Miller, Ralph Lauren, Precision Castparts, Markit
8:30 am: Retail sales
8:30 am: Import prices
10:00 am: Business inventories
1:00 pm: $24 billion 10-year note auction
Thursday
Earnings: Kohl's, Nordstrom, Party City, Applied Materials,Symantec, El Pollo Loco, King Digital
8:30 am: Initial claims
8:30 am: PPI
1:00 pm: $16 billion 30-year bond auction
Friday
Earnings: Nippon Telegraph, Petrobras
8:30 am: Empire State survey
9:15 am: Industrial production
10:00 am: Consumer sentiment
4:00 pm: TIC data
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