Stocks slid Monday, with major indices tumbling by over 2% during the worst points of the afternoon session, as investors nervously eyed the potential ripple effects of the default of a major Chinese real estate company, as well as ongoing debates over the debt limit in Washington.
After defying gravity for most of the summer, September is shaping up to be a tough month for markets, with major benchmarks in retreat for a third consecutive week. At its worst point of the day, the Dow dropped by as many as 972 points, or 2.8%. However, the index closed pared losses to close lower by 1.8%, posting its worst session since July. The S&P 500 and Nasdaq each posted their worst one-day drops since mid-May.
The CBOE Volatility Index, or Vix (^VIX), jumped by more than 30% to its highest since May, as a confluence of risks roiled markets.
Shares of China Evergrande Group (3333.HK) plunged by 10% on the Hong Kong Stock Exchange as fears mounted that the Chinese real estate juggernaut would collapse under a major debt burden, impacting shareholders, bondholders and potentially triggering turmoil elsewhere across global markets. The specter of a broader crackdown by the Chinese government on Hong Kong's real estate sector further added to concerns.
"While the Evergrande situation is front and center, the reality is, stock market valuations are overstretched and the market has enjoyed too long of a break from volatility and Monday's stock market declines are not surprising," said David Bahnsen, chief investment officer at wealth management firm The Bahnsen Group, with over $3 billion in assets under management.
Meanwhile, heated debates in Washington over increasing the government's borrowing limit built on the risk-off tone in markets. U.S. Treasury Secretary Janet Yellen called for Congress to raise the U.S. debt ceiling again in a Wall Street Journal op-ed, and suggested that to do otherwise would risk leaving the government to default on payments and generate "widespread economic catastrophe."
The U.S. House is set to vote this week on the debt ceiling and a stopgap spending measure to keep the government operating past the end of the fiscal year at the end of September.
Even heading into Monday's session, the three major U.S. stock indexes had dipped so far in September amid escalating concerns over the Delta variant, pace of the economic recovery, inflation and path forward for monetary and fiscal policy. Retail sales data last week suggested the consumer was turning back towards goods rather than services spending amid the latest wave of the coronavirus, and still-weak consumer sentiment data suggested many individuals were becoming increasingly concerned about inflationary pressures.
And on the monetary policy front, the prospects of a near-term shift to present ultra-accommodative policy posturing from the Fed has also injected additional uncertainty into markets. The Federal Open Market Committee is slated to hold its two-day policy-setting meeting Tuesday and Wednesday, with the event culminating in a new monetary policy statement, update economic projections, and press conference from Federal Reserve Chair Jerome Powell.
One of the major focuses at this week's meeting will be about whether the Federal Reserve ramps up its signaling around when it will begin to taper its crisis-era asset purchase program. The central bank has suggested this quantitative easing — which currently comprises purchases of $120 billion monthly in Treasurys and mortgage-backed securities — would begin once the economy made "substantial further progress" toward the Fed's goals on inflation and employment.
"While we readily admit that the Committee could make changes to the September statement to signal that tapering is drawing closer, we believe the soft August hiring print and recent surge in COVID cases added enough uncertainty to the economic outlook that would refrain officials from making substantive changes to the wording," Sam Bullard, senior economist for Wells Fargo, wrote in a note on Sunday.
"If the economic data improves sufficiently over the coming weeks, then Fed officials could use public comments throughout October to signal that tapering will commence in November," he added.
For investors, the Fed's move on tapering will be closely watched given that the asset purchases were one major tool the central bank used to bolster liquidity and support the economic recovery during the pandemic, and had by extension helped underpin stocks' rise to record highs.
Though stocks have lost some of their momentum in September so far, some strategists believe the move may be temporary.
"You have to look at where the crowding is, and right now, there's so much negative sentiment with regard to the market. It's why we have been buying this dip this week and telling our clients that we think the market setup is perfect for a pretty big rally for the rest of September and possibly the beginning of October," Eddie Ghabour, Key Advisors managing partner, told Yahoo Finance on Friday. "The next big hurdle we have to get through is the Fed meeting on Wednesday. If the Fed doesn't disappoint, I think it's a risk-on rally ... right now everyone is so pessimistic about the market, and in our opinion markets don't crash when everyone is positioned for it."
4:02 p.m. ET: Stocks slide but close off session lows: Dow sheds 614 points, or 1.8%, in worst day since July
Here were the main moves in markets as of 4:02 p.m. ET:
S&P 500 (^GSPC): -75.33 (-1.70%) to 4,357.66
Dow (^DJI): -614.55 (-1.78%) to 33,970.33
Nasdaq (^IXIC): -330.06 (-2.19%) to 14,713.90
Crude (CL=F): -$1.20 (-1.67%) to $70.77 a barrel
Gold (GC=F): +$13.70 (+0.78%) to $1,765.10 per ounce
10-year Treasury (^TNX): -6.1 bps to yield 1.3090%
1:09 p.m. ET: Stock selloff intensifies, Dow drops 800+ points, or 2.4%
The three major indexes added to losses intraday, with the Dow shedding more than 800 points as the afternoon session rolled in.
Here's where markets were trading Monday afternoon:
S&P 500 (^GSPC): 4,324.45, -108.54 (-2.45%)
Dow (^DJI): 33,746.53, -838.35 (-2.42%)
Nasdaq (^IXIC): 14,615.35, -428.21 (-2.85%)
Crude (CL=F): $70.56 per barrel, -$1.41 (-1.96%)
Gold (GC=F): $1,761.90 per ounce, +$10.50 (+0.6%)
10-year Treasury (^TNX): -7.1 bps to yield 1.299%
11:40 a.m. ET: Caterpillar leads Dow lower as China's industrial restrictions weigh
Shares of industrial bellwether Caterpillar (CAT) sank in intraday trading, falling more than 4.5% to be the biggest decliner in the 30-stock Dow index as concerns over heightened industrial restrictions in China weighed on prices of iron ore and industrial stocks.
China has ratcheted up its curbs on steel production in effort to make progress toward a goal of reaching carbon neutrality by 2060, Bloomberg reported. China's industrial production had also already slowed more than expected in August, data last week showed. Concerns around China's heavily indebted property sector, as well as jitters over the fate of President Joe Biden's multi-trillion-dollar infrastructure bill have further weighed on industrial companies.
11:22 a.m. ET: Bitcoin prices tumble as risk-off mood extends to crypto
Cryptocurrency prices tracked the drop in the major equity indexes on Monday as concerns over China Evergrande rippled across financial markets.
Bitcoin (BTC-USD), the largest cryptocurrency by market capitalization, dropped by more than 10% to fall below $43,000 at session lows, according to Yahoo Finance data. This marked the lowest level since August 7.
Other cryptocurrency prices also fell during Monday's session. Ethereum (ETH-USD), for instance, dropped more. than 8% mid-morning to trade just above $3,000.
10:23 a.m. ET: U.S. eases international travel
President Biden announced that the U.S. will open up the country in November to international travelers, as long as they are vaccinated against COVID-19.
White House COVID-19 coordinator Jeff Zients said foreign travelers flying to the U.S. will need to provide proof of vaccination before boarding, as well as proof of a negative COVID-19 test taken within three days of their flight into the U.S. Under the new policy, unvaccinated American citizens will need to be tested within a day before departure to the U.S. as well as on their return.
10:00 a.m. ET: Homebuilder confidence rebounds
U.S. single-family homebuilders regained confidence in September, after three months of decline. The National Association of Home Builders/Wells Fargo Housing Market Index rose one point to 76, a reading of more than 50 indicates more builders view conditions are good instead of poor.
Homebuilder confidence reached an all-time high of 90 in November 2020, when the COVID-19 pandemic and low interest rates nudged people to buy homes, in some cases bigger homes due to work-from-home. But soaring lumber prices, labor shortages and supply chain issues have put a damper on homebuilder confidence this year.
“While building material challenges persist, the rate of cost growth has eased for some products, but the job openings rate in construction is trending higher," said NAHB Chief Economist Robert Dietz in a press statement.
9:30 a.m. ET Monday: Stocks tumble at the opening bell
Here were the main moves in markets as of 9:30 a.m ET:
S&P 500 (^GSPC): 4,359.72, -73.27 (-1.65%)
Dow (^DJI): 34,040.24, -544.64 (-1.57%)
Nasdaq (^IXIC): 14,748.46, -295.51 (-1.96%)
Crude (CL=F): $70.84 per barrel, -$1.13 (-1.57%)
Gold (GC=F): $1,759.10 per ounce, +7.70 (+0.44%)
10-year Treasury (^TNX): -5.0 bps to yield 1.319%
6:57 a.m. ET Monday: Stock futures plunge, Dow drops 500+ points
Here were the main moves in markets as of Monday morning:
S&P 500 futures (ES=F): -56.75 points (-1.28%) at 4,365.00
Dow futures (YM=F): -541 points (-1.57%) to 34,921.00
Nasdaq futures (NQ=F): -152.25 points (-0.99%) to 15,173.75
Crude (CL=F): -$1.43 (-1.99%) to $70.54 per barrel
Gold (GC=F): +$8.20 (+0.47%) to $1,759.60 per ounce
10-year Treasury (^TNX): -3.9 bp to yield 1.331%