Dow records worst day in 9 weeks as Chinese stock market debt problems Evergrande shake


US stocks fell on Monday but finished well above session lows as investors analyzed the potential impact of a faltering real estate developer in China and traders positioned ahead of a two-day meeting from Federal Reserve policy makers which begins Tuesday.

How did the stocks trade?
  • The Dow Jones Industrial Average DJIA,
    fell 614.41 points, or 1.8%, to end at 33,970.47, recording its worst daily percentage drop since July 19. At its session low, the Dow was down more than 970 points.

  • The S&P 500 SPX,
    + 1.21%
    fell 75.26 points, or 1.7%, ending at 4,357.73, its largest percentage drop since May 12.

  • The Nasdaq COMP Composite Index,
    fell 2.2%, or 330.06 points, closing at 14,713.90, marking its worst percentage drop since May 12.

  • The small cap Russell 2000 RUT,
    fell 2.4% to end at 2,182.20.

What drove the market?

US stocks closed lower on Monday, but retraced large earlier losses in the last hour of trading.

A downturn in the Chinese real estate market, which suffered heavy losses on Monday with shares of China Evergrande 3333,
down 13% in Hong Kong, were blamed for pulling down US and global equities.

Markets have been closed in mainland China for a holiday, but the Hang Seng HSI,
fell more than 3%.

Read: Evergrande fears are driving the stock market down: here’s what investors need to know about the Chinese real estate giant

“There are a lot of headlines to hit stocks, and we’ve seen that happen,” said Sahak Manuelian, head of equity operations at Wedbush Securities in Los Angeles, highlighting Evergrande’s woes, geopolitical tensions, the next FOMC meeting and nervousness about the United States. debt ceiling.

“I don’t know what the scope of this will be,” Manuelian told MarketWatch, but he also said he would be watching to see if investors come out in force over the next few days to buy oppressed stocks, as has been largely the case for any weakness since the start of the year.

The 8.25% Evergrande bond with interest due this week was trading at around 29 cents to the dollar on Monday, according to Reuters.

An S&P Global Ratings report released on Monday said that a default by debt-laden Evergrande would lead neither to a tidal wave of defaults nor to mere ripples of a pebble in a pond, but to some thing in between.

“Stories like Evergrande’s can be hard to digest, and understanding the real risk of this type of event can take time,” Lindsey Bell, chief investment strategist at Ally Invest, wrote in comments sent. by e-mail. “Fear has been in the market for some time and the selling pressure has intensified today with the VIX VIX,
“Fear index” reaching its highest level since May. “

Meanwhile, investors will closely monitor any discussion of spending cuts at the Fed’s two-day policy meeting. The Fed has said it will start cutting its bond purchases before the end of the year, but the exact timing of this move remains uncertain.

To verify: Evergrande isn’t the only reason the stock market is heading for its worst day in 2 months. Here are 5 other reasons

However, the economy has sent mixed signals, amid the increase in coronavirus cases due to the delta variant. Friday’s losses for Wall Street came as consumer sentiment was near a roughly 10-year low.

Analysts were also discussing Congress’ inability so far to raise the debt ceiling.

“We are probably out of the Goldilocks stages, where stocks were going straight higher,” Michael Reynolds, vice president of investment strategy at Glenmede, said in a telephone interview. “It’s almost a return to normal.”

Reynolds said discord in Washington, including over President Joe Biden’s $ 3.5 trillion planned spending plan, could mean “the volatility is here for now.” But he also believes that the fundamentals of the economic recovery remain “in relatively good shape”, meaning that a sustained pullback could be a good time to add risk.

Read: It is the ‘golden age’ of American consumer credit, according to this Voya portfolio manager

Investors were also weighing an optimistic report from Pfizer Inc. PFE,
+ 0.55%
and the German partner BioNTech SE BNTX,
+ 4.05%
Monday, reporting positive results in a Phase 2/3 trial of their COVID-19 vaccine in children aged 5 to 11, and said the vaccine was safe, well tolerated and produced a “robust neutralizing antibody response “.

In business news, the National Association of Home Builders’ monthly confidence index rose one point to 76 in September, the professional group said on Monday. The slight increase comes after a three-month drop in optimism among home builders.

Which companies were the center of attention?
  • Twitter Inc. TWTR, -2.61% said Monday it had reached an agreement to settle a class action lawsuit that began in 2016. Shares fell 2.4%.
  • Shares of China-based electric vehicle makers fell and Tesla Inc. TSLA, -2.97% of stocks ended down 3.9% on Monday, as Li Auto warned of a lack of delivery and the actions of NIO inc. NIO sank 6.2%.

  • GameStop Corp. GME on Monday announced plans to hire 500 employees at its new customer service center in Pembroke Pines, Florida. Shares fell 6.2%
  • The airline industry has outperformed amid a massive sell-off in the market, after reports that Biden will end travel bans for fully vaccinated people. Negotiated exchange J US Global Jets ETFsETS rose 0.6%.

  • Financial stocks collapsed, with Berkshire Hathaway BRK. A, JPMorgan Chase JPM, Bank of America BAC, Wells fargo WFC, Morgan stanley MRS, Citigroup VS, Goldman Sachs GS, and Black rock BLK at the very bottom. The SPDR Financial Selection Fund
    + 2.45%
    lost 2.3%, outpacing the decline in the S&P 500.

How did the other assets behave?
  • The yield on the 10-year TMUBMUSD10Y Treasury bill fell 6.1 basis points to around 1.308%. The yields and prices of debt move in opposite directions.

  • The ICE US Dollar Index DXY, a measure of the currency against a basket of six major rivals, rose less than 0.1.

  • The oil futures contract fell on Monday, with the US benchmark CL00 closing down 2.3% at $ 70.29 per barrel. GC00 gold futures rose 0.7% to $ 1,763.80 an ounce.

  • In European equities, the Stoxx Europe 600 SXXP index closed 1.7% lower, the biggest daily drop since mid-July. The FTSE 100 UKX fell 0.9%.

Barbara Kollmeyer contributed reporting


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