SEPT. STOCK SHOCK

Dow dives over China debt in month of losses

The Dow dropped as much as 971 points on Monday, deepening its funk after three straight weeks of losses as fears over China’s debt-ridden property market helped spark a global sell-off.

The Dow Jones Industrial Average whipsawed deep in the red throughout Monday’s trading session, recovering somewhat in the final hour to close down 614 points, or 1.8 percent. The S&P 500 fell 1.7 percent while the Nasdaq tumbled 2.2 percent.

Embattled developer China Evergrande Group on Monday warned investors of cash-flow problems, saying it may default on debt obligations worth billions of dollars, 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 — which investors fear could come amid a crackdown in China on property developers — could spill over into other sectors and hit companies in other countries, analysts said. 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 has proven no exception. All three major indexes are now off about 4 percent this month.

In the US, investors are also preparing for the Federal Reserve’s September meeting this week in which officials might signal the Fed’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.

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 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.

“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 he believes the correction will merely be a pause that sets the stage for a continued bull market this fall.