Stocks drop most since May on China; Fed worries
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.
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 S&P 500 was coming off two weeks of losses and is on track for its first monthly decline since January. The S&P 500 has gone an unusually long time without a pullback of 5% or more.
The Dow Jones Industrial Average fell 614.41 points, or 1.8%, to 33,970.47. The blue-chip index was briefly down 971 points. The Nasdaq fell 330.06 points, or 2.2%, to 14,713.90. The Russell 2000 index of smaller companies fell 54.67 points, or 2.4%, to 2,182.20. The Hang Seng, Hong Kong’s main index, dropped 3.3% for its biggest loss since July. European markets fell about 2%.
“What’s happened here is that the list of risks has finally become too big to ignore,” said Michael Arone, chief investment strategist at State Street Global Advisors. “There’s just a lot of uncertainty at a seasonally challenging time for markets.”
The worries over Chinese property developers and debt have recently centered on Evergrande, one of China’s biggest real estate developers, which looks as if 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, similarly to how the failure of Lehman Brothers inflamed the 2008 financial crisis and Great Recession. Those property companies have been big drivers of the Chinese economy, which is the world’s second-largest.