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U.S. stocks closed lower on Monday, the first trading day of the fourth quarter, as investors digested key economic news and kept an eye on oil prices.
"I think the market is still looking for inspiration. Non of the news we've gotten have been terribly encouraging," said Bruce McCain, chief investment strategist at Key Private Bank. "Some sort of corrective action, given the [high] valuations wouldn't be surprising and would be healthy for the market."
"The auto sales data were not great," said Chuck Self, CIO at iSectors. "The manufacturing data were not great, either. They're higher, but not running away. I think a lot of this has to do with rally we had Friday."
The S&P 500 fell 0.3 percent, with real estate falling 1.8 percent to lead decliners.
"Things seem to be quiet at the moment. October is usually a rough month for stocks. i guess we're getting a bit of a kickback from Friday, said Randy Warren, chief investment officer at Warren Financial Service.
The Nasdaq composite slid 0.21 percent.
"For me, it could be the return of overbought conditions on Friday. We had a pretty strong session on Friday and that supports a pullback today," said Katie Stockton, chief technical strategist at BTIG. She added, however, that overall short-term momentum remains strong, and that the S&P could break above its all-time intraday high of 2,193.81.
"It's a minor level because it hasn't been tested that much. Technical levels are stronger the more you test them," Stockton said. Stocks ended the third quarter on a high note on Friday, rising around 1 percent.
In economic news, the September Markit Manufacturing PMI came in at 51.5, a three-month low. "U.S. manufacturers signalled another moderate upturn in both production volumes and incoming new work during September, but the latest survey indicated a further loss of growth momentum from July's recent peak," Markit said.
The ISM Manufacturing index for September came in at 51.5, up from 49.4 in the previous month. Construction spending fell 0.7 percent in August, with analysts expecting a 0.2 percent increase.
"The market, I think, is becoming more accepting of the fact that [Federal Reserve Chair] Janet Yellen wants to raise interest rates in December," said Quincy Krosby, market strategist at Prudential Financial. "But you need the market to be underpinned by growth."
"The ISM number came above consensus, and that's positive," she said.
Also, Nissan reported its U.S. auto sales rose 4.9 percent in September, beating expectations. Ford reported a sales fall of 8 percent, still better than the expected 8.5 percent. Toyota sales, meanwhile, missed estimates, rising 1.5 percent. General Motors sales fell 0.6 percent, less than expected. Other vehicle sales for September will be released throughout the day.
Crude prices rose broadly, with U.S. oil futures settling 1.2 percent higher at $48.81 per barrel, supported by a planned production cut by exporter group OPEC, although analysts cautioned a stubborn supply overhang could temper a longer-lasting rally. Brent prices broke above $50, hitting their highest level since August.
The OPEC deal is expected to take effect in November.
"If we get a production cut, even if it's small, or even a production freeze, that's the best news we've gotten over the past two years," said Peter Cardillo, chief market economist at First Standard Financial.
Overseas, European stocks closed mostly flat as investors kept an eye on Deutsche Bank and the U.K. process to leave the European Union. On Friday, U.S. equities had closed sharply higher amid a report that Deutsche Bank was near a settlement with the Justice Department. However, U.S.-listed shares traded 1.9 percent lower Monday with no official deal being announced between Deutsche Bank and the DOJ.
British Prime Minister Theresa May said Sunday she'd start the Brexit process in the early part of 2017, a process which is expected to take about two years to complete. The British pound fell about 1 percent against the dollar on Monday, trading at $1.285.
Against a basket of currencies, the dollar rose 0.24 percent, with the euro near $1.121 and the yen around 101.61.
U.S. Treasurys were mostly lower, with the two-year note yield at 0.794 percent and the benchmark 10-year note yield around 1.6187 percent.
The Dow Jones industrial average fell 54.30 points, or 0.30 percent, to close at 18,253.85, with Travelers Companies leading decliners and DuPont the top advancer.
The fell 7.07 points, or 0.33 percent, to end at 2,161.20, with real estate leading eight sectors lower and telecommunications the greatest riser.
The Nasdaq slid 11.13 points, or 0.21 percent, to close at 5,300.87.
About nine stocks declined for every three advancers at the New York Stock Exchange, with an exchange volume of 809.11 million and a composite volume of 3.060 billion at the close.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 13.57.
Gold futures for December delivery fell $4.40 to settle at $1,312.70 per ounce.
—CNBC's Matt Clinch and Reuters contributed to this report.
On tap this week:
*Planner subject to change.
Earnings: Darden, Micron
8:05 a.m.: Richmond Fed President Jeffrey Lacker speaks on the economic outlook
7:40 p.m.: Chicago Fed President Charles Evans speaks on monetary policy and the economy
Earnings: Yum Brands, Constellation Brands, Monsanto, RPM International
8:15 a.m.: ADP payrolls
8:30 a.m.: Trade deficit
9:30 a.m.: Minneapolis Fed President Neel Kashkari gives welcoming remarks at an event on "Early Childhood Development in Indian Country"
9:45 a.m.: Markit services PMI
10 a.m.: ISM non-manufacturing
10 a.m.: Factory orders
1 p.m. & 5 p.m.: Richmond Fed President Jeffrey Lacker speaks on "Does Federal Reserve Governance Need Reform?"
Earnings: Helen of Troy, International Speedway, Ruby Tuesday
8:30 a.m.: Jobless claims
2 p.m.: Atlanta Fed live webcast on search process for new bank president and answer questions from the public
8:30 a.m.: Employment report
10 a.m.: Wholesale trade
10:30 a.m.: Federal Reserve Vice Chairman Stanley Fischer speaks on the economy and financial regulation
12:45 p.m.: Cleveland Fed President Loretta Mester speaks on Fed communications
3 p.m.: Consumer credit
3:40 p.m.: San Francisco Senior Vice President Mary Daly speaks on the U.S. economic outlook and the role of education in supporting the American dream
4 p.m.: Federal Reserve Governor Lael Brainard speaks on blockchain technology
*All times Eastern. Planner subject to change.