The Dow dropped four-tenths of a percent. The S&P 500 slipped more than one-tenth and the Nasdaq added a tenth.
Expectations the Fed could begin cutting rates as soon as March have been slowly decreasing, according to CME's FedWatch Tool.
"We do expect some volatility here at the beginning of the year as we look to see what is actually going to happen with the Federal Reserve...."
Loreen Gilbert is CEO of WealthWise Financial Services.
"That's another reason why the markets are on pause, is that the markets were pricing in an 80% probability of a Fed rate cut in March. And then we've recently had a job report that was very strong. So with that, the Federal Reserve is not going to be in any rush to lower rates in March or immediately. So while we don't think that they're going to raise rates, it's the timing of when they're going to start lowering rates, where the market may have gotten ahead of itself."
Inflation data later in the week will provide more insight about the timing of the Fed's rate cuts.
In company news, shares of Boeing dropped for a second straight session to close down 1.4%. The plane maker, U.S. regulators and airlines were still wrangling over 737 MAX 9 inspection guidelines after airlines found loose parts from grounded MAX planes. This comes days after an Alaska Airlines plane lost a panel mid-flight.
Juniper Networks surged nearly 22% after a source told Reuters that Hewlett Packard Enterprise was in talks to buy the networking product maker in a $13-billion deal. Hewlett Packard Enterprise dropped nearly 9%.
And earnings season unofficially begins on Friday, with reports from banks such as JPMorgan Chase.
