By Damien J. Troyes, Stan Cho and Alex Vaiga
U.S. stocks have fallen the biggest since May because traders are worried about the potential impact if the debt-ridden Chinese real estate company defaults and the Federal Reserve signals that it will withdraw its support for the market and the economy. The S&P 500 fell 1.7% on Monday. It was down as much as 2.9% before Hong Kong’s main index fell 3.3%, the biggest loss since July, due to concerns that the huge Chinese developer Evergrand could collapse. Yields on 10-year Treasury notes fell 1.31% as investors leaned towards less risky assets.
This is a breaking news update. The previous story of AP is given below.
Stocks on Wall Street fell on Monday, reflecting losses abroad and putting the S&P 500 index on the path to its biggest fall since May.
Concerns about debt-ridden Chinese property developers এবং and global investors ক্ষতি could be at a disadvantage if they default-are spreading across the market. Investors are also concerned that the US Federal Reserve may signal this week that it plans to withdraw some of the support it has given to markets and the economy.
The S&P 500 is down 2.1% from the previous 3:46. At one point, the benchmark index was down 2.9%, the biggest fall since last October. The S&P 500 is also recovering from a two-week loss and is on its way to its first monthly decline since January. The S&P 500 has gone through an unusually long time without a 5% or more draw.
The Dow Jones Industrial Average fell 745 points, or 2.2%, to 33,846, while the Nasdaq fell 2.7%. Hong Kong’s main index, the Hang Seng, fell 3.3% for the biggest loss since July. The European market is down about 2%.
“What has happened here is that the list of risks to ignore has finally grown,” said Michael Aaron, chief investment strategist at State Street Global Advisors. “There is a lot of uncertainty for the market during the challenging season.”
Concerns about China’s property developer and debt have recently centered on Evergrand, one of China’s largest real estate developers, which appears to be unable to repay its debt.
The fear is that a potential collapse there could send a chain reaction through the Chinese property-development industry and spread to the wider financial system, as the failure of Lehman Brothers led to the financial crisis of the 200 financial years and the Great Depression. These property companies were the major drivers of the Chinese economy, the second largest in the world.
If they fail to do well on their debt, heavy losses by investors who hold their bonds will raise concerns about their financial strength. Those bondholders may be forced to sell other, unrelated investments to raise cash, which could hurt prices in a seemingly unrelated market. It’s a product of how tightly connected a global market is, and it’s an idea that the financial world calls “contagious”.
Many analysts say they hope the Chinese government will prevent such a situation and that it will not feel like a Lehman-type moment. Nonetheless, any hint of uncertainty may be enough to upset Wall Street after the S&P 500 rose to almost uninterrupted fashion from October.
In addition to Evergrande, several other concerns are hidden beneath the mostly quiet surface of the stock market. The Fed is probably announcing that it is shutting down the accelerator in its aid to the economy, Congress may choose a destructive game of chicken before allowing the U.S. Treasury to borrow more money, and the COVID-19 epidemic continues to weigh on the economy worldwide.
Whatever the biggest reason for Monday’s market slump, some analysts said there was a reason for such a decline. The S&P 500 has not fallen from a peak to 5% since October, and the almost endless rise has made stocks more expensive and less room for error.
All concerns have pushed something on Wall Street to predict an impending drop for stocks. Morgan Stanley strategists said Monday that the S&P 500 could cause a 20% or more fall. Growth can slow down quickly.
Even if the economy could avoid a recession worse than expected, Morgan Stanley’s Michael Wilson said stocks could fall by about 10% even if the Fed leaves its support for the market behind. The Fed will provide its latest economic and interest rate policy update on Wednesday.
Earlier this month, Steffel strategist Barry Bannister said he expects a 10% to 15% decline for the S&P 500 in the last three months of the year. He noted the Fed’s declining support, among other things. Bank of America strategist Sabita Subramanian did the same, as she set a 4,250 target for the S&P 500 by the end of the year. It will be down 4.1% from Friday’s close.
Technology companies have led less to the larger market. Apple is down 2.5% and chip maker Nvidia is down 4.3%.
Banks have suffered huge losses due to declining bond yields. This hurts their ability to charge higher interest rates on their loans. Yields to the 10-year Treasury fell to 1.31% from 1.37% at the end of Friday. Bank of America down 5%.
Oil prices fell 2.3% and energy reserves declined.
Small company stocks were among the biggest losers. Russell 2000 fell 3.3%
Utilities and other sectors that are considered less risky are better held than the rest of the market.
There were a few bright spots. American Airlines led the beneficiaries in the S&P 500, adding 2.6%.
As the next round of corporate earnings begins in October, investors will have the opportunity to see in depth how it will impact a wide range of companies. Hard-earned stocks are a major driving force, but supply chain disruptions, high costs and other factors could make it even more difficult for companies to meet high expectations.
“The biggest strength of the market this year could be its biggest risk,” Aaron said.