STOCKS DROP THE MOST SINCE MAY
Worries over China, Fed grow
Stocks on Wall Street closed sharply lower Monday, mirroring losses overseas and handing the S&P 500 index its biggest drop in four months.
Worries about heavily indebted Chinese real estate developers — and the damage they could do to investors worldwide if they default — rippled across markets.
Investors are also concerned that the U.S. Federal Reserve could signal this week that it’s planning to pull back some of the support measures it’s been giving markets and the economy.
“What’s happened here is that the list of risks has finally become too big to ignore,” Michael Arone, chief investment strategist at State Street Global Advisors, said. “There’s just a lot of uncertainty at a seasonally challenging time for markets.”
The S&P 500 fell 75.26 points, or 1.7%, to 4,357.73, its biggest drop since May. At one point, the benchmark index was down 2.9%, the biggest decline since last October.
The Dow Jones Industrial Average fell 614.41 points, or 1.8%, to 33,970.47. The bluechip index was briefly down 971 points. The Nasdaq fell 330.06 points, or 2.2%, to 14,713.90. The Hang Seng, Hong Kong’s main index, dropped 3.3% for its biggest loss since July. European markets fell about 2%.
The worries over Chinese property developers and debt have recently centered on Evergrande, one of China’s biggest real estate developers, which looks like it may be unable to repay its debts.
The fear is that a potential collapse there could send a chain reaction through the Chinese property-development industry and spill over into the broader financial system, similar to how the failure of Lehman Brothers inflamed the 2008 financial crisis and Great Recession.
Regardless of what the biggest cause for Monday’s market swoon was, some analysts said such a decline was due.
The S&P 500 hasn’t had even a 5% drop from a peak since October, and the nearly unstoppable rise has left stocks looking more expensive and with less room for error.
All the concerns have pushed some on Wall Street to predict upcoming drops for stocks. Morgan Stanley strategists said Monday that conditions may be ripening to cause a fall of 20% or more for the S&P 500. They pointed to weakening confidence among shoppers, the potential for higher taxes plus inflation to eat into corporate profits and other signs that the economy’s growth may slow sharply.
Investors will have a chance for a closer look at how the slowdown affected a wide range of companies when the next round of corporate earnings begins in October.
“The market’s biggest strength this year could become its biggest risk,” Arone said.