Stocks fell the most since May amid concerns over China, Fed

Wall Street stocks plunged Monday, reflecting losses overseas, and the S&P 500 Index fell the most in four months.

Concerns over debt-ridden Chinese real estate developers and the damage they could inflict on investors around the world if they default have spread across the market. Investors are also concerned that the Federal Reserve may indicate that it plans to withdraw some of the support it has given to markets and the economy this week.

The S&P 500 lost 75.26 points (1.7%) to 4,357.73, the biggest drop since May. At one point, the benchmark fell 2.9%, the biggest drop since October of last year. The S&P 500 is on course to come out of its two-week loss and head towards its first monthly decline since January. The S&P 500 has spent an unusually long time without falling more than 5%.

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The Dow Jones Industrial Average lost 614.41 points (1.8%) to 33,970.47. The Good Equity Index temporarily lost 971 points. The Nasdaq lost 330.06 points (2.2%) to 14,713.90. Hong Kong’s main index, the Hang Seng Index, fell 3.3%, the biggest loss since July. The European market fell by around 2%.

Michael Alone, Director of Investment Strategy at State Street Global Advisors, said: “There are a lot of uncertainties during difficult seasonal times for the market.

Concerns about Chinese real estate developers and debt have recently focused on one of China’s biggest real estate developers, Evergrande, who may not be able to repay its debt.

Just as the collapse of Lehman Brothers sparked the 2008 financial crisis and the Great Recession, a potential collapse there could trigger a chain reaction in China’s real estate development industry and spread system-wide. financial. It is feared that this is possible. These real estate companies are a major driver of China’s economy, which is the second largest in the world.

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If the debt cannot be repaid, investors holding the bond will suffer significant losses, raising concerns about their financial strength. These bondholders may also be forced to sell other irrelevant investments to raise cash, which can hurt seemingly irrelevant market prices. It is a product of proximity to global markets, a concept the financial community calls “contagion”.

Many analysts are hopeful that the Chinese government will prevent such a scenario, which at one point does not look like Lehman. Still, after the S&P 500 has risen almost uninterruptedly since October, signs of uncertainty may be enough to confuse Wall Street.

Besides the Evergrande group, other worries lurk beneath the almost calm surface of the stock market. Besides the Federal Reserve Board of Governors may announce that it will release an accelerator to support the economy, Congress is having a devastating pool game before allowing the US Treasury to borrow more money. You can choose, and the COVID-19 pandemic continues to squeeze the global economy.

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Whatever the main cause of the market fall on Monday, some analysts said it was due to such a fall. The S&P 500 has not fallen 5% since its peak since October, and its nearly unstoppable rise makes stocks more expensive and less prone to errors.

All the worries have prompted some on Wall Street to predict future stock declines. The Morgan Stanley strategist said on Monday that this could cause the S&P 500 to drop more than 20%. They are weakening buyer confidence, stressing that tax hikes and inflation can weigh on corporate profits and that the economy can slow down sharply.

Even if the economy could avoid a worse-than-expected slowdown, Morgan Stanley’s Michael Wilson said stocks could fall around 10% as the Fed refrains from supporting the market. .. The Federal Reserve will provide the latest updates on economic policy and interest rates on Wednesday.

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Earlier this month, Stiffel strategist Barry Banister said he expects the S&P 500 to fall 10-15% in the last three months of the year. He cited the Fed’s declining support, among other factors. Bank of America strategist Savita Subramanian also set a target of 4,250 for the S&P 500 by the end of the year. That’s a 4.1% drop from Friday’s closing price.

Tech companies have brought down the broader market. Apple was down 2.1% and chipmaker Nvidia was down 3.6%.

Banks suffered significant losses due to falling bond yields. This compromises their ability to charge more favorable interest rates on loans. Yields on 10-year Treasuries fell from 1.37% Friday night to 1.31%. Bank of America fell 3.4%.

Oil prices fell 2.3%, putting pressure on energy stocks. ExxonMobil fell 2.7%.

Small business stocks were one of the biggest losers. Russell 2000 lost 54.67 points (2.4%) to 2,182.20.

The airline was one of the few glorious places. American Airlines rose 3%, leading all of the S&P 500 winners. Delta Air Lines rose 1.7% and United Airlines rose 1.6%.

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Cryptocurrency traders also had a rough day. Bitcoin prices have fallen nearly 8% to $ 43,717, according to Coindesk.

Investors have the opportunity to take a closer look at how the downturn affected different companies when their next corporate earnings started in October. Strong earnings have been the main driver for stocks, but supply chain disruptions, rising costs and other factors can make it even more difficult for companies to meet high expectations.

“The biggest strength in the market this year may be the biggest risk,” Arone said.