Traders work on the floor of the New York Stock Exchange (NYSE) on November 29, 2022 in New York City. AFP
The S&P 500 fell 2.1% as of 2:46 p.m. Eastern, and was on pace for a third straight drop. The slide has more than offset the index's gains last week. The Dow Jones Industrial Average fell 563 points, or 1.6%, to 33,866 and the Nasdaq composite fell 2.3%.
Bond yields mostly headed higher. The yield on the 10-year Treasury, which influences mortgage rates, rose to 3.60% from 3.49% late Friday.
The services sector, which makes up the biggest part of the U.S. economy, showed surprising growth in November, according to the Institute for Supply Management. The report is positive for the broader economy, but it makes the Fed's fight against inflation more difficult and means the central bank will likely have to remain aggressive in order to keep pressuring inflation.
Meanwhile, China is lifting some of its most severe COVID-19 restrictions following protests across major cities. That has raised hopes that disruptions to manufacturing and trade will ease.
Investors are also weighing several international developments that could further unsettle a global economy that is already getting burned by stubbornly hot inflation.
Russia's ongoing invasion of Ukraine continues agitating an already volatile global energy market. U.S. crude oil prices bounced around before settling 3.8% lower after a group of world leaders agreed to a boycott of most Russian oil. They also committed to a price cap of $60 per barrel on Russian exports.
Oil and gas company stocks fell along with a broad pullback in energy prices, including an 11.2% slump in natural gas. Exxon Mobil fell 3.5%.
All told, more than 95% of the stocks in the benchmark S&P 500 index were in the red, with technology companies, banks and retailers among the biggest weights on the market. Chipmaker Nvidia fell 2%, Bank of America slid 4.9% and Amazon dropped 3.3%.
Markets in Asia rose, while markets in Europe closed mostly lower.
Inflation, rising interest rates and the potential for recessions throughout global economies are among the biggest concerns for investors. Wall Street has been closely watching corporate announcements and government reports to get a better sense of just how much damage is being done to the economy and inflation's path ahead in 2023.
V.F. Corp., which makes Vans shoes and The North Face outdoor gear, slid 10.9% after warning investors that weak demand is crimping revenue. The company also announced the departure of its CEO.
Tesla fell 6.9% following reports that it may have to cut production in China because of weak demand.
Investors are dealing with several crosscurrents of information. Demand may be weakening in some areas of the economy, but some sectors remain resilient. Employment remains a strong area of the economy as does overall consumer spending.
Wall Street will get a weekly update on unemployment claims on Thursday. Investors will likely be more focused on the monthly report on producer prices, for November, from the government on Friday.
The Fed has been aggressively raising its benchmark interest rate in an effort to tame inflation. The strategy is intended to make borrowing more expensive and generally hit the brakes on consumer spending and the economy. The risk is that the policy could send the economy into a recession.
The Fed is in a very ``hawkish, but awkward`` position, said Gene Goldman, chief investment officer at Cetera Investment Management.
``All of this is playing into uncertainty,'' he said.
The Fed is meeting next week and is expected to raise interest rates by a half-percentage point, which would mark an easing of sorts from a steady stream of three-quarters of a percentage point rate increases. It has raised its benchmark rate six times since March, driving it to a range of 3.75% to 4%, the highest in 15 years. Wall Street expects the benchmark rate to reach a peak range of 5% to 5.25% by the middle of 2023.