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U.S. stocks fell on Monday, but traded off their session lows, as investors evaluated the possibility of significant tax reform coming from the White House.
"Certainly what happened on Friday makes it harder [to push tax reform], but we're not bogged down by it," said Jeremy Klein, chief market strategist at FBN Securities. "I think people are realizing we have a long way to go on tax reform."
The Dow Jones industrial average traded about 75 points lower — after falling nearly 200 points earlier, with Goldman Sachs contributing the most losses. The 30-stock index was also on track to post an eight-session losing streak.
The S&P 500 pulled back 0.3 percent, with financials and utilities leading decliners. Financials were dragged by bank stocks, as the SPDR S&P Bank ETF (KBE) and the Regional Banking ETF (KRE) both fell more than 1 percent.
The Nasdaq composite dropped 0.1 percent after briefly falling 1 percent.
"I don't think this is the beginning of a full-blown correction, but it's definitely a reversal in market sentiment," said Peter Cardillo, chief market economist at First Standard Financial.
The Trump administration was dealt a body-blow Friday after a House bill aimed at replacing Obamacare was pulled from the floor. The GOP bill faced opposition not just from Democrats, but also from conservative and more moderate Republicans, and was not able to secure enough votes to pass.
"One by one, we're seeing the Trump trade unwind across all markets," said Adam Sarhan, CEO of 50 Park Investments, noting that assets like gold and the Mexican peso are around levels not seen since before the election. "A defensive stance is warranted until we see some bullish action take place, and a lot of that depends on what happens in DC."
The House vote was seen as crucial for the Trump agenda. Trump had said the repeal and replacement of Obamacare must happen before action can be taken on his other plans, including a major tax reduction. Stocks have rallied significantly since the U.S. election on hopes of lower taxes, deregulation and fiscal stimulus.
"I am really disappointed that the ACA is not going to change for the better (for now) and am really [mad] that tax reform now may get all chopped up with potentially only modest changes," said Peter Boockvar, chief market analyst at The Lindsey Group, in a note.
Trump said Friday the administration would move to try and slash taxes.
"It's been such a powerful rally that it's not surprising to see a pullback after a disappointment that big," said Maris Ogg, president at Tower Bridge Advisors, referring to the health care bill's defeat. "But the big picture really hasn't changed."
Katie Stockton, chief technical strategist at BTIG, told CNBC's "Squawk Box" on Monday that the stock market's momentum remains solid, adding the pullback may present a buying opportunity for investors.
U.S. Treasurys rose, with the benchmark 10-year note yield sliding to 2.37 percent and the two-year note yield dipping to 1.24 percent.
The U.S. dollar also declined to a four-month low against a basket of major currencies, with the euro near $1.09 and the yen around 110.4.
Overseas markets also faced pressure following the American Health Care Act's defeat, with the pan-European Stoxx 600 index falling 0.57 percent.
There are no major economic data due Monday, but this week investors will digest the third reading on fourth-quarter GDP and personal income data, among others.
The Dow Jones industrial average fell 145 points, or 0.68 percent, to 20,451, with Goldman Sachs lagging and Coca-Cola leading advancers.
The S&P 500 dropped 18 points, or 0.84 percent, to 2,323, with financials leading nine sectors lower and utilities and real estate the only advancers.
The Nasdaq composite declined 55 points, or 0.94 percent, to 5,774.
About 10 stocks declined for every three advancers at the New York Stock Exchange, with an exchange volume of 68 million and a composite volume of 189 million in early trade.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 14.6.