Stocks finished lower Monday, with the Dow closing at a two-week low, as investors turned cautious after initially cheering reports that the U.S. and China were close to completing a landmark trade deal. Concerns that stocks are becoming too expensive on the back of a two-month rally from December lows also weighed on sentiment.

The Dow Jones Industrial Average DJIA, -0.02% fell 206.67 points, or 0.8%, to 25,819.65, the lowest since Feb. 14. During the session, the Dow was down as much as 415 points and up 129 at its peak for an intraday range of more than 500 points.

The S&P 500 index SPX, -0.29% shed 11.07 points, or 0.4%, to 2,792.62, and the Nasdaq Composite Index COMP, -0.56% dropped 17.79 points, or 0.2%, to 7,577.57.

Read: Don’t write off stocks just yet because the market has what it takes to hit new peaks

What drove the market?

The Wall Street Journal reported that Washington and Beijing could reach a trade deal as soon as this month. Media reports also said the pact would end most U.S. tariffs levied against China in exchange for the latter following up on its own promises to allow in more U.S. exports, among other measures.

While the deal has yet to be completed and hurdles remain on both sides, a formal agreement could be reached at a summit — likely around March 27 — between President Donald Trump and Chinese President Xi Jinping.

On the economic front, the Commerce Department said that construction spending fell by 0.6% in December, versus a 0.3% increase expected by economists polled by MarketWatch.

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Over the weekend, Trump took a new swipe at Federal Reserve Chairman Jerome Powell and a strong dollar in a lengthy speech at the Conservative Political Action Conference in National Harbor, Md.

“We have a gentleman that likes a very strong dollar at the Fed. I want a strong dollar, but I want a dollar that is great for our country not a dollar that is so strong that it is prohibitive for us to be dealing with other nations,” said Trump. He also lashed out at the media, Democrats, environmentalists and special counsel Robert Mueller’s Russia probe.

China’s economy will also be in the spotlight this week with the National People’s Congress due to kick off and officials expected to announce growth targets.

What were strategists saying?

“I think the market was and is significantly overbought,” Larry Benedict, CEO of the Opportunistic Trader, told MarketWatch. “The market opened higher off of the China news, but traders are realizing that China hasn’t commented on it,” causing concern in some quarters that a trade deal isn’t as imminent as Monday-morning reports suggested.

“Markets have firmed on news that the U.S.-China deal is really close,” John Vail, chief global strategist at Nikko Asset Management, said. “There are also signs of macroeconomic improvement in China recently,” he added, noting that manufacturing data has improved, while there are signs that the government is beginning to stimulate the economy by encouraging banks to lend to the private sector.

Nevertheless, he warned that “the market is not cheap,” and that the recovery in valuations of U.S. stocks over the past two months has made high stock prices “a headwind” going forward.

Bill Stone, chief investment officer at Avalon Advisors LLC, said some weakness is expected given the recent market gains, while a bilateral trade deal has been largely anticipated.

“[The] U.S. and China deal has already been discounted by the market. View it as a sell on the good news when we got more news today that a deal was close,” he said.

Read:Stocks may roar to start the month, but end March with a whimper, analysts say

Which stocks were in focus?

Shares of AT&T Inc. T, -0.31% fell 2.7% after the telecommunications giant announced plans to consolidate its affiliates and ad sales groups under a single structure. The Wall Street Journal reported that the effort will lead to significant layoffs.

Shares of Kraft Heinz Co. KHC, -0.66% rose 2.6% after Morgan Stanley upgraded the stock to equal weight from underweight. The stock is down 23% year-to-date after the firm wrote down the value of its Kraft and Oscar Mayer brands by $15.4 billion in February.

Bed Bath and Beyond Inc. BBBY, -1.76% shares slid 5.3% after Barclay’s downgraded the stock to underweight from equal weight.

Shares of Children’s Place Inc. PLCE, -1.44% sank 10% after the children’s-apparel retailer reported fiscal fourth-quarter earnings and sales that were well below expectations.

How did other markets trade?

Stocks in Asia rose on trade hopes, with China’s Shanghai Composite Index SHCOMP, +0.16% surging 1.1% to 3,027.58, its highest level in nine months.

European equities were also higher; the Stoxx Europe 600 SXXP, +0.66% gained 0.2%.

Gold prices US:GCJ9 took a hit as the dollar DXY, +0.31% strengthened against peers and oil prices US:CLJ9 climbed more than 1%.

—Barbara Kollmeyer contributed to this report