Shares fell on Wall Street on Monday, reflecting losses abroad and putting the S&P 500 on track for its biggest fall since February.
Concerns about indebted Chinese real estate developers — and the harm they can do to investors around the world if they fail — ripple across the markets. Investors are also worried about the United States The Federal Reserve may signal this week that it plans to withdraw some of the support measures it has provided to markets and the economy.
The S&P 500 fell 2.2% from 1:21 p.m. Eastern. The benchmark index also comes after two weeks of losses and is on track for its first monthly decline since January.
The Dow Jones Industrial Average fell 799 points, or 2.3%, to 33,783 and the Nasdaq fell 2.7%. Smaller corporate stocks were among the biggest losers. Russell 2000 fell 3.2%.
Technology companies led the wider market lower. Apple fell 2.7% and chipmaker Nvidia lost 4.6%.
Banks made large losses when bond yields fell. It damages their ability to charge more lucrative interest rates on loans. The return on the 10-year Treasury fell to 1.32% from 1.37% late last Friday. Bank of America fell 3.1%.
The price of oil fell by 2% and weighed on energy stocks.
Tools and other sectors that are considered less risky held up better than the rest of the market.
There were few bright spots. Pfizer maintained the sharp decline in the market after announcing that the vaccine works for children between the ages of 5 and 11 and that it will soon apply for permission from the United States for that age group.
Concerns over Chinese real estate developers and debt focused recently Evergrande, one of China’s largest real estate developers, which looks like it may not be able to repay its debts.
Many analysts say they expect the Chinese government to prevent an explosion severe enough to cause losses to cascade through markets. But a hint of uncertainty may be enough to upset Wall Street, after the S&P 500 has slid higher almost continuously since October. It set its latest closing high just over two weeks ago, on 2 September.
Hang Seng, Hong Kong’s main index, fell 3.3% for its biggest loss since July. Many other markets in Asia were closed for holidays. European markets fell by about 2%.
“What has happened here is that the risk list has finally become too large to ignore,” said Michael Arone, investment strategist at State Street Global Advisors. “There’s just a lot of uncertainty during a seasonal challenge for the markets.”
In addition to Evergrande, several other concerns have lurked beneath the stock market’s quietest surface. In addition to the Fed possibly announcing that it is releasing the accelerator on its support for the economy, Congress can choose a destructive game with chicken before allowing the US Treasury Department to borrow more money and the COVID-19 pandemic continues to weigh on the global economy.
Regardless of what the biggest reason for Monday’s swoon on the market was, some analysts said that such a decline was due. The S&P 500 has not even fallen by 5% from a peak since October, and the almost unstoppable increase has made the shares look more expensive and with less room for error.
All concerns have driven some on Wall Street to predict future stock falls. Morgan Stanley strategists said on Monday that the conditions may mature to cause a fall of 20% or more for the S&P 500. They pointed to weakened customer confidence, the possibility of higher taxes plus inflation to eat up corporate profits and other signs that economic growth can slow sharply.
Although the economy can avoid the worse-than-expected slowdown, Morgan Stanley’s Michael Wilson said equities could still fall by about 10% when the Fed withdraws its support for markets. The Fed will deliver its latest economic and interest rate policy update on Wednesday.
Earlier this month, Stifel strategist Barry Bannister said he expects a 10% to 15% reduction for the S&P 500 over the last three months of the year. He cited, among other things, the Fed’s reduction in its support. So did Bank of America strategist Savita Subramanian, setting a $ 4250 target for the S&P 500 at the end of the year. That would be a decrease of 4.1% from the end of Friday.
Investors will have a chance to take a closer look at how the slowdown affected a wide range of companies when the next round of corporate results begins in October. Good results have been an important driving force for equities, but supply chain disruptions, higher costs and other factors can make it more difficult for companies to meet high expectations.
“The market’s greatest strength this year may be its greatest risk,” said Arone.