Stocks bottomed out at session lows by mid-afternoon Monday as expectations over when the Federal Reserve might hike rates shifted.
The S&P 500 fell 1.1%, the Dow Jones Industrial Average slid 1.1%, and the Nasdaq declined 1.2%. The Dow lost its gains for the year.
"We're coming off a very good week and the narrative has certainly changed in terms of monetary policy," Art Hogan, chief market strategist at Wunderlich Securities, told CNBC. "We've been too low for too long, and I think the path toward normalization starts in December."
A stronger-than-expected October jobs report on Friday shored up the chances of a December rate hike, which would be the Fed's first move higher in nearly a decade. The likelihood of a December hike is now 70%, up sharply from a 30% chance several weeks ago, according to CME Group's Fed funds futures.
San Francisco Fed President John Williams said on Saturday that policy normalization was the "next step" as the U.S. labor market continues to tighten and inflation moves back to target levels.
"I do think it makes sense to gradually remove the policy of accommodation that helped get the economy to where we are," Williams said at an event for the Arizona Council on Economic Education. Williams declined to say whether he backs a December rate hike.
Norfolk Southern (NSC - Get Report) jumped more than 10% on reports the railroad company is considering a merger with industry peer Canadian Pacific (CP - Get Report) . M&A talk boosted other railroad stocks including Union Pacific (UNP - Get Report) , Kansas City Southern (KSU - Get Report) and CSX (CSX - Get Report) .
Priceline (PCLN) fell 9.6% after guiding for a weaker-than-expected fourth quarter. The online travel agency expects fourth-quarter profit no higher than $11.90 a share, well below estimates of $12.42. The company did beat expectations in its recent quarter, though, earning $25.35 a share, above estimates of $24.21.
The company weighed on the consumer stocks sector, the worst performer on Monday. Amazon (AMZN - Get Report) , Tesla (TSLA - Get Report) , Netflix (NFLX - Get Report) and Costco (COST - Get Report) moved lower, while the Consumer Discretionary SPDR ETF (XLY - Get Report) fell 1.5%.
Plum Creek Timber (PCL) shares jumped more than 17% after Weyerhaeuser (WY - Get Report) agreed to buy the company in a deal that would create a $23 billion timber company. Weyerhaeuser's Doyle Williams will act as president and CEO of the new company.
Apache (APA - Get Report) rose 12.8% after Bloomberg reported the oil and gas producer received, and rejected, an unsolicited takeover approach. The Houston-based oiler is reportedly working with Goldman Sachs to draft a defense.
Dean Foods (DF - Get Report) jumped 4% after beating third-quarter profit estimates maintained high prices even as the costs of raw milk declined. The largest U.S. milk process earned an adjusted 30 cents a share over the quarter, 6 cents above estimates. However, revenue dropped 14% to $2.03 billion, marking the third straight sales decline.
Anavex Life Sciences (AVXL) fell 12.8% after the biopharma reported positive results from its clinical trial of an Alzheimer's Disease treatment. However, some argue that the trial results have been misleadingly overblown.
Match Group, owner of dating sites Tinder and OKCupid, plans to raise as much as $466.2 million in its upcoming initial public offering. The company disclosed on Monday that its float of 33.3 million shares will be priced at between $12 and $14.