Stock Market Today: Stocks End Lower On China Covid Risk; Oil Prices Whipsaw

Updated at 4:15 pm EST

Stocks ended lower Monday as global investors reacted to a series of weekend protests in China over the country's Covid policies and braced for a key week of data releases on jobs and inflation that could define the Federal Reserve's near-term rate path.

Hundreds of demonstrators clashed with police in Shanghai yesterday, with protests also breaking out in the capital city of Beijing, as anger over the country's strict lock-down policies, which are approaching their third year, boiled over following a deadly apartment fire in the city of Urumqi.

Commentary on Chinese social media suggested the ten deaths from the fire were linked to restrictions that prevented a proper response from rescuers. 

The unrest has added another layer of uncertainty to global markets, already grappling with recession and inflation risks, and looks to dominate headlines from overnight trading heading into the final weeks of the year.

The region-wide MSCI ex-Japan benchmark fell 1.18% into the final hours of trading, while stocks in China were marked around 1.5% lower by the close of the session. In Europe, the Stoxx 600 was down 0.65% Frankfurt while Britain's FTSE 100 ended 0.17% lower in London.

Oil prices were also firmly in retreat, as investors bet on an extended slump in demand from China as its anti-Covid protests continue to disrupt manufacturing and supply chains.

Prices rebounded later in the session, however, amid speculation that OPEC members could agree to more production cuts when they meet next week in Vienna.

Brent crude contracts for January delivery, the global pricing benchmark, were down 70 cents in late afternoon trading at $82.93 per barrel while WTI futures for the same month gained 58 cents to change hands at $76.86 per barrel after falling below $74 earlier in the session, the lowest levels in nearly a year.

Benchmark 10-year Treasury note yields fell to a multi-week low of $3.651 as investors found their way into defensive assets, before rising to 3.687%, while the U.S. dollar index was marked 0.70% higher against a basket of its global peers at 106.70.

On Wall Street, traders are looking for a solid end-of-year rally in December, traditionally the best month of the year for U.S. stocks with an average gain of 1.6% for the S&P 500.  The benchmark ended Monday's session down 1.54%.

The Dow Jones Industrial Average fell 497 points, or 1.45%, to 33,849 lower while the tech-heavy Nasdaq lost 1.58%.

With the third-quarter earnings season nearly complete, and some 485 companies in the S&P 500 reporting, collective profits are expected to rise 4.3% from last year to a share-weighted total of $463.4 billion.

Excluding the outperformance of the energy sector, however, that rate falls to -3.5%, with negative earnings growth of -0.4% expected over the three months ending in December, according to Refinitiv data.

That could put this year's hope for a so-called Santa Claus rally -- defined as the gains recorded over the last five trading days in December and the first two in January -- in doubt, although data from CFRA indicates that gains have been recorded in 75% of the post-Christmas sessions since 1945.

A light corporate earnings calendar will be highlighted by updates from HPE  (HPE) - Get Free Report on Tuesday, Salesforce  (CRM) - Get Free Report on Wednesday and merger-target Kroger  (KR) - Get Free Report on Thursday.

Job market data may prove more crucial to this year's finish for stocks, however, as investors sift through a series of releases that could either challenge or support the Federal Reserve's cautious inflation optimism.

Minutes from the Fed's last meeting in early November indicated officials were more focused on the destination of its rate hikes, as opposed to pace required to get there, while noting a preference for smaller increases they monitor the impact of their recent tightening.

Friday's November jobs report, which is expected to show a net new 200,000 positions added over the month of November, will be closely studied for any evidence of declining wage growth, which the Fed sees as crucial to its forecasts for slowing inflation over the coming year. Analysts expect average hourly earnings to ease modestly from October, while still rising at an annualized rate of 4.6%.

The Commerce Department's JOLTs report for the month of October, set for release at 10:00 am Eastern time on Wednesday, could shed light on the nature of unfilled positions -- which add to upward pressure on wages -- following a bigger-than-expected September tally of 10.71 million.

Fed Chair Jerome Powell is also scheduled to speak on the job market at event in Washington hosted by the Brookings Institution on Wednesday.

A key inflation reading on Thursday will also be in focus with the release of the Fed's preferred gauge -- the PCE Price index -- for the month of October. The 8:30 am release is expected to show core prices moderating to 0.3%, with a year-on-year reading of 5.3%.