Stocks Drop as Economic Worries Weigh on Sentiment

Stocks fell on Monday, a drop that shows investors continue to grapple with economic concerns as spreading protests in China added to the list of risks facing the global economy.

The S&P 500 fell 1.5 percent. The index started the day only moderately lower, but the drop worsened after James Bullard, president of the Federal Reserve Bank of St. Louis, said during an interview with MarketWatch that the central bank still had more to do when it came to containing inflation.

“Markets are underpricing a little bit the risk that the F.O.M.C. will have to be more aggressive rather than less aggressive in order to contain the very substantial inflation that we have in the U.S.,” Mr. Bullard said, referring to the Fed’s policy-setting committee, the Federal Open Market Committee.

Stocks have climbed nearly 7 percent since early November, a rally fueled largely by expectations that the Fed would slow its process of raising interest rates. Market analysts have repeatedly warned that the rally could be undercut by signs that the economy is still overheating, or new suggestions from the Fed that it isn’t ready to stop its effort to contain inflation.

Investors will hear from Federal Reserve Chair Jerome H. Powell on Wednesday, and they will get an update on the state of the job market on Friday. While other measures of the economy have pointed to the likelihood of a slowdown, the job market has remained robust, posing a challenge for central bankers.

The negative tone on Wall Street was set early in the day, as investors considered a rare outbreak of protests in China over Covid-19 restrictions , with citizens demonstrating against the country’s strict pandemic guidelines.

Oil prices, often seen as a measure of sentiment toward China’s economy, were sharply lower by the start of trading on Wall Street but they regained those losses by the afternoon. West Texas Intermediate crude rose 1.3 percent to $77.24 a barrel, leaving oil prices up around 2 percent since the beginning of the year.

Unrest in China could slow the production and sale of everything from smartphones to appliances. Weighing on the broad market, shares of Apple — the world’s largest company by market capitalization, which relies on China as a manufacturing hub — fell 2.6 percent.