The S&P 500 dropped, with megacaps Microsoft, Apple, Nvidia and Amazon slipping more than 1 per cent, pressured by higher U.S. Treasury yields, which made returns on stocks less attractive

U.S. stocks closed lower on Monday, interrupting last week’s rally, as investors turned cautious ahead of employment data due this week that could alter expectations that the Fed will cut interest rates early next year.

The S&P 500 dropped, with megacaps Microsoft, Apple, Nvidia and Amazon slipping more than 1 per cent, pressured by higher U.S. Treasury yields, which made returns on stocks less attractive.

The S&P 500 registered its highest close of the year on Friday as remarks from Fed Chair Jerome Powell acknowledged the central bank’s need to “move forward carefully” amid indications of economic softening, comments that strengthened expectations the Federal Reserve has finished hiking rates.

Small-cap stocks gained on Monday, with the Russell 2000 rallying nearly 1 per cent and bringing its gain this year to around 7 per cent.

There is a lot of chop around here that is not necessarily meaningful, said Tom Martin, a senior portfolio manager at GLOBALT Investments in Atlanta.

We have a really important Fed meeting coming up, and what makes it important is that all of a sudden, the market has decided that they are going to cut in early 2024, Martin said.

The S&P 500 shed 0.54 per cent to close the session at 4,569.78 points.

The Nasdaq dropped 0.84 per cent to 14,185.49 points, while Dow Jones Industrial Average lost 0.11 per cent to 36,204.44 points.

Volume on U.S. exchanges was comparatively heavy, with 12.7 billion shares traded, compared to an average of 10.6 billion shares over the past 20 sessions.

Ride-hailing service Uber Technologies soared 2.2 per cent after an announcement on Friday it will join the S&P 500 effective December 18.

Shares of Alaska Air Group slid 14 per cent after the carrier said on Sunday it would acquire peer Hawaiian Holdings for $1.9 billion, including debt. Hawaiian’s shares almost tripled in value, helping raise the Russel index.