Stocks started the week on a negative note on concern that China may have to tighten its COVID curbs further, undermining prospects for global economic growth and sparking growing unrest in key cities.

The S&P 500 trimmed its monthly rally. Apple Inc. slumped as Bloomberg News reported that turmoil at its key manufacturing hub of Zhengzhou is likely to result in a production shortfall of close to 6 million iPhone Pro units this year, citing a person familiar with assembly operations. Oil sank to the lowest since December.

The unrest in China complicates expectations of the country's path to reopening, which, along with prospects of more moderate Federal Reserve interest-rate increases, had buoyed sentiment toward riskier assets in recent sessions. Chances are also growing of a messy exit from Beijing's COVID-zero policy, analysts at Goldman Sachs Group Inc. warned.

"This is going to keep economic activity subdued in the country, and beyond," said Fawad Razaqzada, market analyst at City Index and Forex.com. "The civil unrest is adding another layer of uncertainty over the economic situation there. It is certainly hurting investor sentiment across the financial markets."

Just when the S&P 500 was trying to break above the highs of mid-November, sentiment turned negative, threatening the market's recent momentum. Timing is most inconvenient here as the index approaches a crucial technical zone in the shape of both the 2022 downtrend and the 200-day moving average. Should the recent bullishness evaporate, short-term tactical bear trades might spark a bout of profit taking.

Stagflation is the key risk for the global economy in 2023, according to investors who said hopes of a rally in markets are premature following this year's brutal sell-off. Almost half of the 388 respondents to the latest MLIV Pulse survey said a scenario where growth continues to slow while inflation remains elevated will dominate globally next year. The second most likely outcome is deflationary recession, while an economic recovery with high inflation is seen as least probable.

Fed Chair Jerome Powell is expected to this week cement expectations that the central bank will slow its pace of hikes next month, while reminding Americans that its fight against inflation will run into 2023. Powell is scheduled to deliver a speech, nominally focused on the labor market, at an event on Wednesday.

Rita Nazareth reports for Bloomberg News.

Copyright 2022 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.