U.S. stocks closed slightly lower Tuesday, ahead of a likely interest rate hike, as energy stocks fell.
"The continued drop in oil has got stocks rolling over again," said Peter Coleman, head trader at Convergex. "A little out of stocks into bonds."
U.S. crude oil prices briefly fell 2 percent to hit a fresh three-month low after OPEC said oil inventories had continued to rise and Saudi Arabia surprisingly self-reported a jump in production, despite the start of a global deal to cut supply.
Energy was the worst performing S&P 500 sector, and the Energy SPDR ETF (XLE) fell more than 1 percent to hit its lowest since Nov. 7. Chevron had the greatest negative impact on the Dow Jones industrial average.
"Oil begs the question, is this a canary in a coal mine saying global growth isn't as robust as we thought?" said Mike Baele, managing director at U.S. Bank Private Client Reserve.
Dow Jones industrial average year-to-date performance
The Federal Open Market Committee kicked off its two-day meeting Tuesday and is expected to announce a rate increase at the meeting's Wednesday afternoon conclusion.
"What they have following that [rate hike], I think, is what's making people nervous," said JJ Kinahan, chief market strategist at TD Ameritrade. "What will be their new targets?"
Traders mostly bought Treasurys, sending the benchmark 10-year Treasury yield lower near 2.60 percent, after closing Monday at 2.607 percent, its highest since Sept. 2014. The rate-sensitive briefly edged higher to 1.38 percent.
The U.S. dollar index traded about 0.4 percent higher, with the euro around $1.061 and the yen near 114.7 yen against the greenback.
"It's really monetary policy and the timing and complexity of U.S. legislation" that are in focus for markets this week, said Peter Boockvar, chief market analyst at The Lindsey Group. He added that trade volume would likely be light given a snowstorm in the greater New York area.
As of the close, U.S. composite trade volume was just over 6.2 billion shares, just below the 50-day average of 6.8 billion shares.
The Dow transports fell nearly 1.4 percent in their worst day since March 2. United Continental and other airline stocks led the index lower.
Late Monday, the Congressional Budget Office said it estimated 14 million more people would become uninsured next year if the American Health Care Act is signed into law. The report said by the year 2026, a total of 24 million more Americans would be uninsured then they would be under Obamacare.
"The CBO review of the Obamacare repeal and replace [is] just adding to uncertainty about the timing of any legislation," Boockvar said. "If that gets delayed, then tax reform gets delayed."
The S&P 500 has climbed more than 10 percent since the election, helped by a 23 percent rise in the financial stocks. Many analysts attribute most of those gains to expectations of increased economic growth from the Trump administration's promises for tax cuts, deregulation and infrastructure spending.
However, U.S. Bank's Baele said that of stocks' rise, "a good chunk of this is because the numbers have been good, and if the administration has a setback I don't think we really give all the numbers back."
In economic news, the Producer Price Index (PPI) rose 0.3 percent last month. In the 12 months through February, the PPI jumped 2.2 percent, the biggest advance since March 2012 and ahead of the 2.0 percent gain forecast in the Reuters poll.
Earlier on Tuesday, the National Federation of Independent Business (NFIB) said its small business optimism index fell 0.6 points to 105.3 last month.
Major U.S. Indexes
Overseas, the STOXX Europe 600 declined 0.3 percent. The Shanghai composite eked out a roughly 2-point gain, while the Nikkei 225 fell 0.12 percent.
The Dow Jones industrial average closed 44.11 points lower, or 0.21 percent, at 20,837.37. Chevron had the greatest negative impact, while Walt Disney and Wal-Mart had the greatest positive impact.
The closed down 8.02 points, or 0.34 percent, at 2,365.45, with energy leading 10 sectors lower and consumer discretionary the only gainer.
The Nasdaq composite ended 18.97 points lower, or 0.32 percent, at 5,856.82.
The CBOE Volatility Index (.VIX), considered the best gauge of fear in the market, climbed above 12.
About two stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 747 million and a composite volume of 3.1 billion in the close.
U.S. crude oil futures for April delivery settled 68 cents lower at $47.72 a barrel.
Gold futures for April delivery settled 50 cents lower at $1,202.60 an ounce.
On tap this week:
Wednesday
Earnings: Oracle, Guess, Jabil Circuits
8:30 a.m. Retail sales
8:30 a.m. CPI
8:30 a.m. Empire state survey
10:00 a.m. Business inventories
10:00 a.m. NAHB survey
2:00 p.m. FOMC statement, economic projections
2:30 p.m. Fed Chair Janet Yellen briefing
Thursday
Earnings: Adobe Systems, Dollar General, JA Solar, Vivant Solar
8:30 a.m. Jobless claims
8:30 a.m. Housing starts
8:30 a.m. Building permits
8:30 a.m. Philadelphia Fed survey
10:00 a.m. JOLTS
Friday
Earnings: Tiffany
9:15 a.m. Industrial production
9:15 a.m. Capacity utilization
10:00 a.m. Consumer sentiment
*Calendar subject to change.
— CNBC's Dan Mangan and Reuters contributed to this report.