US stocks slumped Monday as investors weighed a host of risks, including a possible change in Federal Reserve guidance this week that could hurt corporate earnings.
After falling nearly 850 points earlier today – the biggest intraday drop in almost a year – the Dow Jones Industrial Average reduced those losses to close 614 points, or 1.8%, at 33 970. The broader S&P 500 stock index fell 1.7%, while the high-tech Nasdaq composite fell 2.2%. The declines extended a decline for Wall Street this month, with the benchmark S&P 500 losing nearly 1% last week just before Monday’s drop.
Although September has historically been a weak month for stocks, a number of factors are weighing on market sentiment. Investors remain concerned that the latest wave of COVID-19 could slow economic growth, while closely monitoring pressure from Congressional Democrats to raise taxes on wealthy Americans and big business as well as Republicans’ refusal to raise the US debt ceiling.
Fears are also growing that Evergrande Group, a major Chinese real estate developer, could default on its hundreds of billions of debts and trigger a.
“The Delta variant outbreak and its impact on the recovery played into September’s weak seasonal trend,” Piper Sandler analysts said in a report. “The prospect of higher taxes, [Fed] uncertainty over the debt crumbling and ceiling, as well as the potential for systemic risk from the Evergrande crisis in China also contributed to the sour sentiment. “
Large real estate companies and Hong Kong banks have lost ground amid lingering concerns about the potential spillover effects of Evergrande’s financial woes. The company was set to miss interest payments as rating companies predicted that it could default on its debt. Its shares fell 10.6% on Monday.
“With over $ 300 billion in liabilities and only $ 15 billion in cash, Evergrande is currently the most leveraged real estate developer in the world,” Ryan Detrick, chief market strategist for LPL Financial, told investors in a statement. note. “Concerns are growing that starting next week, he won’t be able to pay $ 84 billion in interest owed (according to Bloomberg), as well as potentially missing a principal payment on at least one. of its loans. “
Fed policy update
The Fed is due to release its latest update on economic policy and interest rates on Wednesday, with some analysts expecting policymakers to signal their intention to start withdrawing some of the extraordinary stimulus they have maintained during the pandemic, a process known as “taper”.
The central bank said higher costs for raw materials and consumer goods will always be temporary as the economy recovers, but analysts fear higher prices will persist and hurt corporate results while slashing prices. expenses.
Concerns are also growing about the US debt ceiling. House Democrats said on Friday they plan to suspend the government’s borrowing power cap this week, and the White House has stepped up pressure on Republicans by warning state and local governments that severe cuts were being made. to come if the measure fails in the Senate.
Tech companies led the broader market lower on Monday. Apple lost 2.7% and chipmaker Nvidia lost 4.6%. Banks also suffered heavy losses due to falling bond yields. This impairs their ability to charge more lucrative interest rates on loans.
Utilities and other sectors considered less risky held up better than the rest of the market. There were few bright spots. Pfizer held its own amid the general market downturn after announcing that its vaccineand that it will soon seek US clearance for this age group.