The global stock rout sparked by investor angst over China’s real-estate sector and Federal Reserve tapering deepened on Monday, with U.S. stocks falling the most in almost a year.
The S&P 500 fell as much 2.65%, the biggest one-day slide since October 2020, a test for the buy-the-dip mentality as the gauge jabs at its 100-day moving average.The benchmark index is still up around 15% this year. Treasuries gained along with the dollar before Wednesday’s Fed meeting, where policy makers are expected to start laying the groundwork for paring stimulus.
“If the market is ripe for a correction, ‘tis the season for one,” said Anne Wickland, Portfolio Manager at Easterly Investment Partners LLC.“Most selloffs seem to occur at the end of the third quarter, beginning of the fourth as investors start to adjust future expectations. Evergrande might get the ball rolling for a broader market selloff.” The Stoxx Europe 600 index dropped 1.7% to a two-month low.
Raw materials led the broad-based retreat as iron ore extended a slump below $100 a ton and base metals declined after China stepped up restrictions on industrial activity. Germany’s DAX underperformed as a rebalancing takes effect.Hong Kong shares slumped amid the biggest selloff in property stocks in more than a year as traders tracked the risk of contagion from the debt crisis at developer China Evergrande Group, which is fueling new fears about China’s growth path.
“China is not investable, not at this point — even on a government level because you just really don’t know what protection you’re going to have or what the currency is going to do,” Ed Yardeni, president of Yardeni Research, said in an interview on Bloomberg TV.
Aside from Evergrande and the prospect of reduced Fed stimulus, financial markets also face risks from uncertainty over the outlook for President Joe Biden’s $4 trillion economic agenda as well as the need to raise or suspend the U.S. debt ceiling. Investors were already fretting over a slowing global recovery from the pandemic and inflation stoked by commodity prices.
“The edges of the bullish narrative cover are being pulled and the darker underlying reality is coming to the fore,” said Sebastien Galy, a senior macro strategist at Nordea Investment Funds SA. “It is taking the market more time to price in these shocks than I had expected, and the market is far more realistic as the buy-on-dip mentality fades with the fear of inflation.”
Treasury Secretary Janet Yellen said the U.S. government will run out of money to pay its bills sometime in October without action on the debt ceiling, warning of “economic catastrophe” unless lawmakers take the necessary steps.
Meanwhile, emerging-market stocks headed for their biggest drop in a month, while Russia’s ruble and Chile’s peso led developing-nation currency declines.
Bitcoin briefly fell below $43,000. WTI crude oil extended a drop toward $70 a barrel.
Here are key events to watch this week:
- Canada federal election, Monday
- Bank of Japan rate decision, Wednesday
- Federal Reserve rate decision, Wednesday
- Bank of England rate decision, Thursday
- Fed Chair Jerome Powell, Fed Governor Michelle Bowman and Vice Chairman Richard Clarida discuss pandemic recovery, Friday
Some of the main moves in markets:
- The S&P 500 fell 2.6% as of 2:35 p.m. New York time
- The Nasdaq 100 fell 3.1%
- The Dow Jones Industrial Average fell 2.6%
- The MSCI World index fell 2.3%
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro was little changed at $1.1726
- The British pound fell 0.7% to $1.3651
- The Japanese yen rose 0.5% to 109.35 per dollar
- The yield on 10-year Treasuries declined six basis points to 1.31%
- Germany’s 10-year yield declined four basis points to -0.32%
- Britain’s 10-year yield declined five basis points to 0.79%
- West Texas Intermediate crude fell 2.2% to $70.40 a barrel
- Gold futures rose 0.6% to $1,762.60 an ounce