The Dow Jones industrial average (INDU) slumped 131 points, or 1%, to 12,381. The S&P 500 (SPX) fell 16 points, or 1.2%, to 1,317. The Nasdaq Composite (COMP) tumbled 44 points, or 1.6%, to 2,759.
On Friday, rating agency Fitch cut Greece's credit rating by three notches to "highly speculative," putting it in junk bond territory. In addition, Standard & Poor's slashed Italy's outlook to 'negative' from 'stable.' The downgrades, combined with a weaker-than-expected reading on manufacturing in Europe, renewed concerns about the eurozone's debt crisis.
Furthermore, Spain's ruling Socialist party was hit with its worst election defeat in years over the weekend, as citizens continued to protest the weak economy and high unemployment.
All of that helped boost the U.S. dollar to a two-month high against the euro. The stronger dollar pressured prices for commodities that are priced in the U.S. currency, such as oil.
Looking ahead, there aren't a lot of reasons for optimism. Investors seem to have taken to heart the old Wall Street adage of "Sell in May, then go away."
After a strong round of first-quarter corporate earnings, investors are turning their attention to the outlook for the global economy, said Kevin Rendino, senior portfolio manager at BlackRock.
"We're entering one of those horrendous macro periods," he said.
Investors are also bracing for life without the billions of dollars the Federal Reserve has been pumping into the economy. The Fed's quantitative easing program is set to expire in June.
The U.S. housing market could be in focus early Tuesday, with the government's montly report on new home sales expected before the market opens. Later in the week, investors will take in a revised reading on second-quarter U.S. gross domestic product.
Oil for July delivery fell $2.40 to settle at $97.70 a barrel.
Gold futures for June delivery rose $6.50 to $1,515.40 an ounce.
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