US Stocks Retreat as Oil Prices, Chinese Shares Fall

US stocks fell, oil prices declined and Chinese shares suffered their worst selloff in more than two years as Beijing sticks to its zero-Covid strategy while faced with increasing cases in major cities.

The S&P 500 retreated 0.8% in afternoon trading Monday. The tech-focused Nasdaq Composite Index was recently up less than 0.1%, while the Dow Jones Industrial Average lost 0.6%, or about 200 points. The Dow on Friday posted its worst one-day percentage change since October 2020, dropping nearly 1,000 points.

Twitter shares added about 4%. The social-media company is in advanced discussions to sell itself to Elon Musk and could complete a deal Monday, people familiar with the matter said.

Investors are worried that strict policies China has in place to combat Covid-19 will further disrupt global supply chains. Continued disruptions to manufacturing and the movement of goods since the start of the pandemic have contributed to US inflation reaching a four-decade high. New lockdowns in China and Russia’s war against Ukraine are likely to add to price increases.

“A lot of supply chains are directly impacted by China,” said Brian Price, head of investment management for the Commonwealth Financial Network. “The longer they’re offline, the more that will feed into inflation across the globe.”

On Monday, the Shanghai Composite and CSI 300 indexes fell 5.1% and 4.9% respectively. Those were the largest single-day percentage declines for both benchmarks since February 2020, in the early days of the pandemic.

The offshore yuan fell about 1% to trade at about 6.59 per dollar. That was the lowest since November 2020, according to FactSet. The decline built on a selloff last week that ended months of relative stability.

As Shanghai remains locked down amid China’s biggest Covid-19 outbreak, residents are taking to social media to vent about a shortage of food or they are bartering with neighbors. Anxiety and hunger are prompting many to question Beijing’s pandemic strategy. Photo: Chinatopix Via AP

“The problem with inflation is it can get embedded and we see inflation getting quite sticky,” said Sebastian Mackay, a multiasset fund manager at Invesco. “What we’re seeing is a combination of the war in Ukraine and the lockdown in China causing supply issues.”

Limitation of movement in China could also sap demand for oil. Brent crude, the international benchmark for oil, fell 5.6% to $ 100.20 a barrel. Despite the decline, oil prices still remain near historically high levels due to concerns about disruptions to energy markets from Russia’s invasion of Ukraine.

Energy stocks slid 5.5%, leading the S&P 500’s decliners. Shares of Schlumberger fell 9.5%, Halliburton dropped 8.1% and APA,

Apache Corp..

‘s parent company, slipped 7.7%.

In other corporate news, shares of Coca-Cola were recently down 0.3%. The company said it logged higher sales for the last quarter as demand held up in the face of price increases. Advanced Micro Devices rose 2.4% after a Raymond James analyst lifted his rating on the chipmaker’s shares.

Whirlpool will report earnings after the market closes.

Elevated inflation has caused the Federal Reserve to increase efforts to combat it. Last week, Fed Chairman Jerome Powell signaled that the central bank is ready to tighten monetary policy more quickly and indicated that it was likely to raise interest rates by a half-percentage point at its meeting in May.

Investors appeared to be weighing whether an even bigger hike remains a possibility, Mr. Price said. “That has spooked some investors,” he said.

Money managers are worried that the Fed’s aggressive interest-rate increases could slow economic growth or even tip the economy into recession. This could lead to a situation where the Fed has to raise interest rates in the short term but cut them in the long term, Mr. Mackay said.

The Cboe Volatility Index — Wall Street’s so-called fear gauge, also known as the VIX — rose to 30.40, near its highest level since mid-March.

The yield on the benchmark 10-year Treasury note ticked down to 2.789% Monday from 2.905% Friday as investors sought safer assets to hold. Yields and prices move inversely. The Wall Street Journal Dollar Index, which measures the dollar against a basket of currencies, added 0.6%.

The Dow Jones Industrial Average on Friday posted its worst one-day percentage change since October 2020.


Photo:

BRENDAN MCDERMID / REUTERS

Gold futures fell 1.7% to $ 1,901.00 a troy ounce. While gold is historically seen as an inflation hedge, it pays no yield, making it less attractive than government bonds in a time of rising interest rates. The cost of buying gold, which is denominated in dollars, is also more expensive for foreign investors when the dollar strengthens.

Bitcoin, the world’s largest cryptocurrency by market value, fell 1.8% from its dollar value at 5 pm ET Sunday to trade at $ 38,815.22 Monday. Cryptocurrencies can move in line with broader market sentiment, with investors buying risk, more volatile assets when sentiment is strong and selling when it is weaker.

Overseas, the pan-continental Stoxx Europe 600 closed down 1.8%. South Korea’s Kospi declined 1.8%, and Japan’s Nikkei 225 contracted 1.9%.

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Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Justin Baer at justin.baer@wsj.com

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