U.S. stocks continued to decline as investors remain on the edge about the outlook for growth stocks after Tesla Inc. dropped the most since 2020 on demand woes and declines in Apple Inc. dragged key indexes. The dollar rose the most in nearly three weeks.

The S&P 500 fell about 1%, dragged by technology and energy stocks. The tech-heavy Nasdaq 100's losses surpassed 1%. A drop in Apple shares, as concerns about iPhone supply in the important holiday quarter mount, pushed the firm's market value below $2 trillion. The firm has told suppliers to make fewer components for some products because of weakening demand. Tesla fell after fourth-quarter deliveries missed estimates, despite the firm offering incentives in important markets.

In a departure from what stocks are doing on Tuesday, Treasuries rose, with yields declining across the curve. The 10-year yield dropped to around 3.77%, after falling to 3.72% earlier. Stocks and bonds could return to their old ways, with bonds serving as a hedge for risk exposure, according to most respondents of MLIV Pulse's latest survey.

Investors, still cautious after their wagers missed the mark in 2022, expect a volatile year of trading as uncertainty about the U.S. economy persists. Federal Reserve policy will dictate how stocks and bonds perform, with some traders already seeking out opportunities resulting from risk assets getting sold off.

Recession concerns also continue to linger, with former New York Fed President William Dudley saying that an imminent slowdown won't be severe while investors continue to mull how much Fed tightening will impact the economy. All eyes will be on the jobs report this week, as softening in the labor market remains the Fed's focus.

"Everyone is bracing for volatility. That seems to be the common theme," said Shawn Cruz, head trading strategist at TD Ameritrade. "Anyone I talk to, they're expecting generally elevated levels of volatility this year. And maybe that doesn't mean another year like we had this past year but a much choppier market."

Signs that COVID infections may have peaked in some of China's biggest cities had buoyed sentiment earlier in the session. However, China's economy may not get the "outsized boost" people are expecting, Matt Maley, chief market strategist at Miller Tabak + Co., wrote in a note. Chris Senyek of Wolfe Research also isn't bullish about China's reopening.

"In our view, there's still a massive amount of uncertainty there, and whenever growth does begin to re-accelerate, inflation headwinds are more likely than not to offset global growth tailwinds," he said in a note.

Vildana Hajric and Isabelle Lee report for Bloomberg News.

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