U.S. markets tumbled in wild trading Monday as investors worried that one of China’s biggest property developers could default on hundreds of billions of debt, a scenario that would have ripple effects across the economy.
Investors also grappled with the threat of a government shutdown and uncertainty over the Federal Reserve’s monetary policy, which has helped to fortify the economy since the initial shocks of the pandemic.
The Dow Jones industrial average was down more than 900 points in afternoon trading before cutting its losses. It closed at 33,970.47, down 614.41, or 1.8%.
The S&P 500 index has notched back-to-back losses for the past two weeks, and the trend continued Monday: The broad gauge was down 1.7% at the closing bell. The tech-heavy Nasdaq pulled back even further, falling nearly 2.2%.
“While history has shown that over the past 40 years the stock market has experienced an intra year pullback often in excess of 5-10%, we have not seen any real consolidation of this magnitude since last October,” Wayne Wicker, chief investment officer at MissionSquare Retirement, said in an email to The Post. “As a result, the market is anticipating a number of worries to result in a normal pullback in the coming months.”
Hong Kong’s Hang Seng Index was pummeled, slumping more than 3% to its lowest close in roughly a year. Jitters carried over into Europe, where most major indexes, including the benchmark Stoxx 600, had fallen 1.7%. China-exposed companies were hit hard, with British mining company Anglo American falling more than 5% and German steelmaker ThyssenKrupp sinking 6.3%.
The Evergrande Group is the most debt-laden property developer in the world, with liabilities in excess of $300 billion, and earlier this month it sounded the alarm that it could not keep up with its obligations to lenders, investors and suppliers. Construction on many of its projects has halted and, amid a wider debt crackdown in Beijing, concerns are mounting that the company’s failure could spark a broader crisis in the real estate market, a key engine of China’s economy.
“It’s easy to look to the nearest headline like Evergrande and attach a cause and effect, but this market has experienced almost no downside volatility for a long time and a pullback was long overdue,” David Bahnsen, chief investment officer of The Bahnsen Group, said Monday in comments emailed to The Post. “Evergrande’s collapsing bond prices have been forecasting its challenges for some time.”
Some experts have compared the distress of Evergrande to the fall of Lehman Brothers in 2008, one of the largest casualties in the global financial crisis.
Concerns about China are adding to an already risk-studded September trading landscape. Fall is a notoriously tough time for stocks, and the rise of the delta variant has cast a pall over the economic recovery. Tensions around the debt limit, infrastructure and Federal Reserve policy add to the uncertainty.
While covid-related hospitalizations fell about 9% over the past week, reported deaths rose by 22% and the number of new cases held steady, maintaining nearly 150,000 infections every seven days, matching levels from January. As cases have increased over the past few months more employers have mandated vaccines for workers and President Biden has embraced broad vaccine requirements as a tool to curb the spread of the highly infectious delta variant.
On Monday White House press secretary Jen Psaki that the president will get a booster shot of the coronavirus vaccine in the coming weeks and will do so on camera. Expert advisers to the Food and Drug Administration voted unanimously to recommend that the agency authorize a booster shot of the Pfizer-BioNTech coronavirus vaccine six months after vaccination for people 65 and older and for anyone at risk for severe illness.
Monday’s declines also extended to digital assets: Bitcoin tumbled as much as 10%, below $43,000, according to CoinDesk. The cryptocurrency market overall slid more than 8% with popular tokens including Ether and Dogecoin falling during afternoon trading.
Earlier this year, the crypto market surged to new highs, surpassing $2.5 trillion in market capitalization, drawing in new investors and highlighting the ways some financial institutions were adopting cryptocurrency and the technology that undergirds digital tokens. But in recent months regulators across the globe have signaled plans for heightened scrutiny. And investors are also looking ahead to the Federal Reserve’s meeting this week, which could provide more details on when the central bank could start scaling back support for the markets.
Traders flocked to safe-havens, sending gold up more than 0.7% to roughly $1,765 per troy ounce. The yield on the 10-year U.S. Treasury note sank .06%. Yields fall as bond prices rise.
Volatility reached oil markets, sending Brent crude, the international benchmark, down 1.2% to $74.46 a barrel. West Texas Intermediate, the U.S. oil benchmark, declined 1.6% to trade around $70.85 per barrel.
The Fed begins its two-day meeting Tuesday. As with previous huddles, market observers will be looking for signs of monetary tightening after months of central bankers implementing policies to boost the economy during the pandemic.
The debate over monetary policy and the uncertain future of Biden’s economic agenda are also weighing on U.S. markets, said Jamie Cox, the managing partner for Harris Financial Group. Cox pointed to “stalemates in Congress on the debt ceiling, worries on policy changes or mistakes in monetary policy, and a litany of proposed tax increases” that have dampened the mood for investors.
Treasury Secretary Janet Yellen has called on Congress to raise the federal debt ceiling as Republican lawmakers refuse to help avert a financial crisis. Democrats and Republicans on Capitol Hill face a host of urgent fiscal challenges, including the potential for a shutdown, a legal limit on Washington’s ability to rack up debts and disaster relief funding.