U.S. equities fell on Monday as the chances of tighter monetary policy from the Federal Reserve sunk in for investors, while geopolitical concerns increased.
"It feels like the fundamental picture is still there," said Art Hogan, chief market strategist at Wunderlich Securities. "But at the same time you've got some events happening in March that are getting people worried. I think you're starting to see that."
The Dow Jones industrial average closed about 50 points, with Travelers contributing the most losses. The S&P 500 declined 0.3 percent, with financials and materials leading decliners. The Nasdaq pulled back around 0.4 percent.
Market expectations for a rate hike were 86.4 percent Monday, according to the CME Group's FedWatch tool. The Fed's monetary policy committee is set to meet between March 14 and 15.
"The March rate hike doesn't matter. What matters is how many times they raise," said Jeremy Klein, chief market strategist at FBN Securities. "If they stay at three times [for this year], then the market will be fine."
The only potential obstacle for the Fed to raise rates at this point is the February jobs report, which is scheduled for release on Friday. Economists polled by Reuters expect the U.S. economy to have added 186,000 jobs last month.
"I think the market treads water ahead of the jobs report. That could give you the next 15 percent" in rate hike expectations, said Kim Forrest, senior equity analyst at Fort Pitt Capital. "But if it's a dramatic miss, it could take it off the table."
Investors also kept an eye on the geopolitical front after North Korea fired four ballistic missiles Monday, three of which landed in Japan's exclusive economic zone, according to Japanese Prime Minister Shinzo Abe.
The Japanese Nikkei 225 fell 0.46 percent overnight, lagging the rest of the region.
Meanwhile, in Europe, stocks declined broadly as bank stocks were led lower by Deutsche Bank. Germany's biggest lender announced it will raise $8.5 billion to boost its capital position and has set new financial targets.
"At the same time, the bank is going to cut its stake in asset management units by focusing more on its core business," said Naeem Aslam, chief market analyst at Think Markets in London. "Deutsche Bank is going to remain on traders' dashboards as they try to make sense of company's future."
Deutsche's U.S.-listed shares fell 3.8 percent, while the pan-European Stoxx 600 index pulled back 0.52 percent.
Stocks in the U.S. are coming off a record-setting week after a speech from President Donald Trump lifted expectations that the administration's agenda — especially regarding tax reform and deregulation — could become reality in the near future.
However, the Trump administration called for an investigation Sunday on whether former president Barack Obama wiretapped Trump Tower during last year's election. Trump originally leveled the accusations against Obama on Saturday via Twitter, but did not provide and evidence supporting them.
"If the dynamic changes and the market believes Trump's pro-growth agenda will not go through, that would change the game on Wall Street," said Adam Sarhan, CEO of 50 Park Investments.
Trump signed a new travel ban Thursday, doubling down on the most divisive action of his young presidency.
The Dow Jones industrial average fell 51.37 points, or 0.24 percent, to close at 20,954.34, with Travelers leading decliners and Caterpillar leading advancers.
The declined 7.81 points, or 0.33 percent, to end at 2,375.31, with materials and financials leading 10 sectors lower and energy as the only riser.
The Nasdaq dropped 21.58 points, or 0.37 percent, to close at 5,849.17.
About three stocks declined for every advancer at the New York Stock Exchange, with an exchange volume of 795.71 million and a composite volume of 3.224 billion at the close.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 11.3.
—CNBC's Jacob Pramuk, Aza Wee Sile and Reuters contributed to this report.
On tap this week:
CERAWeek conference begins
3:00 p.m. Minneapolis Fed President Neel Kashkari
8:30 a.m. Trade deficit
3:00 p.m. Consumer credit
8:15 a.m. ADP payrolls
8:30 a.m. Productivity and costs
10:00 a.m. Wholesale trade
7:45 a.m. European Central Bank rate decision
8:30 a.m. ECB President Mario Draghi briefing
8:30 a.m. Jobless claims
8:30 a.m. Import prices
Earnings: The Buckle, Vail Resorts
8:30 a.m. Employment report
2:00 p.m. Federal budget