Worries about spreading contagion from troubles in China’s property market sent U.S. stocks toward their steepest declines in months on Monday.

Losses for the major U.S. indexes accelerated midday. The Dow Jones Industrial Average dropped 2.6%, or around 900 points, dragged down by shares of Caterpillar and financial heavyweights like Goldman Sachs. The Dow was on pace for its worst day since October 2020. The S&P 500 dropped 2.6%. The technology-focused Nasdaq Composite Index fell 3.1%.

The...

Worries about spreading contagion from troubles in China’s property market sent U.S. stocks toward their steepest declines in months on Monday.

Losses for the major U.S. indexes accelerated midday. The Dow Jones Industrial Average dropped 2.6%, or around 900 points, dragged down by shares of Caterpillar and financial heavyweights like Goldman Sachs. The Dow was on pace for its worst day since October 2020. The S&P 500 dropped 2.6%. The technology-focused Nasdaq Composite Index fell 3.1%.

The moves snapped an extended stretch of calm for major indexes. The S&P 500 hasn’t fallen more than 1% since Aug. 18, when it fell by just under 1.1%. All three major indexes are down around 4% this month.

“It’s a surprise Monday open,” said Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management. “We are definitely being a little more cautious at this point.”

The declines were broad-based, with all 11 of the S&P 500 sectors recording declines. The retreat came amid concerns over property developer China Evergrande Group. Market participants increasingly believe that Beijing will let Evergrande fail and inflict losses on its shareholders and bondholders. The company’s debt burden is the biggest for any publicly traded real estate management or development company in the world.

“This is a company based in China whose activities are overwhelmingly centered in China. That being said, we always are monitoring global markets, obviously from the Department of Treasury primarily, including the assessment of any risk to the U.S. economy and stand ready to respond appropriately if needed,” White House press secretary Jen Pskai said, referring reporters to the Treasury Department.

The concerns over Evergrande struck as investors had already grown more cautious about the outlook for stocks, after a booming rally for much of the year. Money managers have said valuations look elevated and pointed to signs that the economic recovery in the U.S. has lost steam amid the spread of the Delta variant of the coronavirus.

Some analysts say that major U.S. indexes were due for a pullback after a nearly relentless dash for records. For much of the summer, individual and institutional investors piled into the stock market, helping send the S&P 500 to more than 50 fresh highs this year. Market volatility was low.

The mood shifted in September. Many investors were bracing for more volatility in the autumn months, and some on Wall Street said that they were forecasting lackluster returns through the rest of the year. Analysts at firms including Citigroup, Deutsche Bank and Bank of America published notes this month cautioning about risks in the U.S. stock market while others said they expected economic growth to soften.

Some forecasts have grown even darker. Morgan Stanley strategists warned on Monday about the growing likelihood of more than a 20% decline in the S&P 500.

Investors have been grappling with a number of risks, including slowing economic growth as the Delta variant has spread alongside higher inflation. This week, investors will be closely tracking the Federal Reserve’s monetary policy meeting.

“Investors are really unsure which way to turn right now,” said Johan Grahn, head of ETFs at Allianz Investment Management.

The steep declines in the stock market coincided with a broader rush out of riskier assets and toward relatively safe ones. Oil prices dropped while Treasury yields skidded. Meanwhile, other speculative assets like bitcoin fell sharply.

Futures for Brent crude, the benchmark in international energy markets, fell around 1.5% to $74.18 a barrel. Yields on 10-year Treasury notes, which move inversely to the price of the bonds, slipped to 1.309% in recent trading from 1.369% Friday.

Shares of energy and financial companies were among the worst performers on Monday, and companies in sectors that are exposed to China’s resource-hungry economy experienced big declines. Anglo American dropped more than 5% and Freeport-McMoRan lost around 7%.

Shares of Invesco fell around 9% in recent trading. Goldman Sachs shares dropped roughly 4.2%.

And the Russell 2000 index of small companies fared even worse than other major indexes, sliding 2.7%.

The uncertainty surrounding global growth and more volatility in the fall months has triggered many investors to turn to the options market to hedge against bigger swoons in stocks, traders and analysts say. The Cboe Volatility Index, a gauge of expected swings in the S&P 500, rose to 26.59.

Analysts fear Beijing will let Evergrande fail and inflict losses on its shareholders and bondholders.

Photo: Kyle Lam/Bloomberg

Another factor weighing on markets Monday was a natural-gas shortage in Europe that has prompted the U.K. government to hold emergency talks with energy suppliers, said Edward Park, chief investment officer at Brooks Macdonald. Elsewhere, the Stoxx Europe 600 dropped around 1.7%.

Hong Kong-listed shares of Evergrande, which said Sept. 13 it was facing unprecedented difficulties, tumbled more than 10% to their lowest closing level in a decade. The Hang Seng Index dropped 3.3% to its lowest close since October. Mainland Chinese markets were closed for a holiday.

“Everyone is looking at Evergrande and saying ‘has the time come for a major default in that area, and then the potential for contagion into the broader property sector?’” Mr. Park said. “It’s an imminent risk now rather than being a theoretical risk as it has been for the past few years.”

China’s leaders are pushing Evergrande and other real-estate companies to reduce their debts, as they try to tame the mainland’s housing markets after years of runaway growth. A domestic bank loan repayment is due by Evergrande on Monday, with a 24-hour grace period, according to Deutsche Bank strategists. Payments on domestic and dollar bonds are due Thursday.

“When you have the combination of worries like you have today—deleveraging, Evergrande, the internet sector—then you get more volatility,” said Frank Benzimra, head of Asia equity strategy at Société Générale.

Some analysts said that they did not expect Evergrande’s financial woes to trickle into other parts of the world, and that the stock-market selloff would be short-lived. Mr. Benzimra said Evergrande was unlikely to lead to a “Lehman moment” akin to the financial shocks that followed the collapse of Lehman Brothers in 2008.

JPMorgan analysts said in a note on Monday that the market sell-off was exacerbated by technical factors such as options hedging as well as poor liquidity. They considered Monday’s selloff an “overreaction.”

“Our fundamental thesis remains unchanged, and we see the sell-off as an opportunity to buy the dip,”  wrote a team led by JPMorgan’s Marko Kolanovic in a note Monday.

—Andrew Restuccia contributed to this article.

Write to Elaine Yu at elaine.yu@wsj.com , Joe Wallace at joe.wallace@wsj.comand Gunjan Banerji at gunjan.banerji@wsj.com.