US stocks fall amid contagion fears of China’s real estate issues
Stocks collapsed on Wall Street today in a large selloff that extends an already weak streak for major indices.
Concerns about debt-engulfed Chinese real estate developers – and the damage they could do to investors around the world if they default – are spilling over into the markets.
The S&P 500 fell 1.8% at midday on Wall Street. The benchmark index has not fallen more than 1% since mid-August. It also just suffered two weeks of losses and is on track for its first monthly drop since January.
The Dow Jones Industrial Average fell 572 points, or 1.7%, to 34,012 and the Nasdaq fell 2.3%. Small business stocks were among the biggest losers. The Russell 2000 fell 2.7%.
Tech companies have led the market as a whole to the downside. Apple fell 2.3% and chipmaker Nvidia lost 3.7%.
Banks suffered heavy losses as bond yields fell. This impairs their ability to charge more lucrative interest rates on loans. The 10-year Treasury yield fell to 1.32% from 1.37% on Friday night. Bank of America fell 3.1%.
Oil prices fell 1.5% and weighed on energy stocks.
Utilities and other sectors considered less risky have held up better than the rest of the market.
There were few bright spots in the wider market. Pfizer rose 0.9% after saying its vaccine worked for children aged 5 to 11 and would seek authorization in the United States for that age group soon.
Concerns about Chinese real estate developers and debt have recently focused on Evergrande, one of China’s largest real estate developers, which appears to be unable to repay its debts.
Many analysts say they expect the Chinese government to prevent an explosion severe enough to cause cascading losses in the markets. But any hint of uncertainty may be enough to upend Wall Street, after the S&P 500 has surged higher almost uninterruptedly since October.
The Hang Seng, Hong Kong’s main index, fell 3.3% for its biggest loss since July. Many other markets in Asia have been closed for the holidays. European markets fell around 2%.
“What has happened here is that the list of risks has finally become too long to ignore,” said Michael Arone, chief investment strategist at State Street Global Advisors. “There is just a lot of uncertainty at a difficult seasonal time for the markets.”
Besides Evergrande, there are several other concerns lurking beneath the generally calm surface of the stock market. The Federal Reserve could soon announce that it will let go of the accelerator on its support for the economy, Congress could go for a destructive chicken game before allowing the US Treasury to borrow more money and the COVID pandemic- 19 continues to weigh on the global economy.
Whatever the main cause of Monday’s market collapse, some analysts said such a drop was due. The S&P 500 hasn’t even seen a 5% drop from a high since October, and the almost unstoppable rise has left stocks more expensive and with less margin for error.
All the worries have prompted some on Wall Street to predict future stock declines. Morgan Stanley strategists said on Monday that conditions could ripen to cause the S&P 500 to fall 20% or more. They pointed to weakening buyer confidence, the potential for higher taxes and lower prices. ‘inflation to undermine corporate profits and other signs that the economy’s growth may slow sharply.
Even if the economy can avoid this worse-than-expected slowdown, Morgan Stanley’s Michael Wilson said stocks could still fall around 10% as the Fed cuts support for markets. The Fed is due to release its latest update on economic policy and interest rates on Wednesday.
Earlier this month, Stifel strategist Barry Bannister said he expected the S&P 500 to decline 10% to 15% in the last three months of the year. He cited the reduction in support by the Fed, 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 would be a 4.1% drop from Friday’s close.
Investors will have the opportunity to take a closer look at how the downturn has affected a wide range of businesses when the next round of corporate results begins in October. Strong earnings have been a key driver for stocks, but supply chain disruptions, higher costs and other factors could make it harder for companies to meet high expectations.
“The biggest strength in the market this year could become its biggest risk,” Arone said.