The Dow dropped more than 700 points, adding to three straight weeks of losses, as fears over China’s debt-ridden property market helped spark a global selloff.
The Dow Jones industrial average lost more than 720 points, or over 2.1 percent, in early afternoon trading Monday before paring some of those losses. It was last seen trading about 680 points lower.
The S&P 500 fell 2.1 percent — on pace for its worst day since mid-May — while the Nasdaq tumbled 2.6 percent.
Embattled developer China Evergrande Group has warned investors of cash-flow problems and that it may default on its debt obligations, which analysts at UBS have pegged at about 6.5 percent of the total debt held by China’s property sector.
A default of that size could spill over into other sectors and hit companies in other countries, analysts said. In particular, investors are concerned about ripple effects of the crackdown in China on the property development market. Hong Kong stocks saw a major sell-off earlier Monday with the Hang Seng index plunging more than 3 percent.
“It raises the question if there are similar companies and similar situations investors haven’t looked at,” said Tim Anderson, managing director at TJM Investments.
September, especially the second half of the month, is historically a tough time for stocks, and this year’s proven no exception. The Dow is more than 2.2 percent lower for the month, while the S&P 500 is down over 2 percent and the Nasdaq is more than 1.4 percent lower.
In the US, investors are also preparing for the Federal Reserve’s September meeting this week in which officials might signal it’s ready to taper its bond-buying program that’s given stocks a lift throughout the pandemic.
“It’s unlikely we can go another month without the Fed signaling to markets what the plans are for policy changes ahead,” said Charlie Ripley, senior investment strategist at Allianz Investment Management. “The bottom line is Fed stimulus will begin to decline soon and market turbulence is starting to reflect that.”
And COVID-19 cases remain worryingly high as much of the country approaches autumn, when infections flared up last year.
“A correction in the bull market is long overdue — I wouldn’t be shocked if we dropped 10 to 15 percent,” said Jim Paulsen, chief investment strategist at Leuthold Group.
Nevertheless, Paulsen said that he believes the correction will merely be a pause that sets the stage for a continued bull market this fall. Investors may be “buying the dip” before the week is over, he said.
“There’s always reasons to be worried — China, COVID, etc., take your pick,” he added. “I would be more concerned if there were pressures that could produce recession but we don’t have an inverted yield, we don’t have tight monetary policy, we don’t have profits that are struggling, we just don’t have that. So I think this is a refresher as opposed to an all-out bull market ending. This is a buying opportunity.”
By sector, energy was hit particularly hard as the West Texas Intermediate benchmark for crude oil dropped more than 2 percent. Occidental Petroleum and Hess both fell almost 6 percent in afternoon trading while Devon Energy dropped 6.5 percent.
Callon Petroleum dropped almost 6 percent and Laredo Petroleum fell by more than 3 percent.
The financial sector was hit, too, with Goldman Sachs and Bank of America down more than 4 percent in afternoon trading. JP Morgan was about 3.5 percent lower while Citi Bank was down almost 5 percent.
Nucor Steel, which has outperformed the market so far this year, fell more than 9 percent while US Steel fell about 6.5 percent. Steel Dynamics dropped more than 7 percent. Mike Wilson, Morgan Stanley’s chief US equity strategist, said in a note to clients Monday that the market could be headed for a 20-percent correction.
Downward earnings revisions, weak consumer confidence and the tapering of federal stimulus, among other factors, could all make for a tough transition back to a post-pandemic economy, he said.
“Given the extraordinary fiscal stimulus during this recession, we are concerned that the inevitable deceleration in growth will be much worse than what is currently expected,” he said.
On Friday, The University of Michigan’s September consumer sentiment index came in just barely higher than August’s level, which was the lowest in nine years.
Dow drops more than 500 points amid troubles in China's real estate market - New York Post
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