Shares on Wall Street slumped Monday as indices plunged across Europe amid a series of investor concerns – including troubled Chinese real estate giant Evergrande, rising energy prices in Europe and questions about how the Federal Reserve will manage to shut down. buying big bond program.
The S&P 500 fell 1.7 percent in early trading, its strongest fall so far this month. The index has fallen for two straight weeks, and before Monday’s decline, it was down more than 2 percent since hitting a record high on Sept. 2.
In Europe, the Stoxx Europe 600 fell 2.1 percent, while the FTSE 100 in the UK fell 1.4 percent. Hong Kong’s Hang Seng fell 3.3 percent to its lowest point in nearly a year. Most other Asian markets were closed for holidays.
Investors pushed the Hong Kong-listed shares of some of China’s largest real estate developers deep into the red amid fears that Evergrande’s mounting debt problems could spill over, affecting the financing capabilities of other developers at a time of tightened regulatory oversight. Hong Kong shares of Chinese developer Sinic Holding fell 87 percent after regulators in a Chinese province said they would punish certain sales practices by developers.
“These concerns about what is going on with Evergrande and China and a potential default have spillover effects into European markets,” said Mike Bell, a strategist at JPMorgan Asset Management in London. But he said it seemed the market was worrying too much.
“Can you get more volatility in the next two months? Yes, it is possible,’ Mr Bell added. “But looking at China right now, we still think the earnings outlook – outside of companies like Evergrande – for the broader market remains very positive.”
High natural gas prices in Europe are driving up energy bills and shutting down factories, such as those that make fertilizers, in Britain. Smaller energy companies in Britain are seeking government support. And the price of iron ore, the main raw material in steel, has fallen, pushing the inventories of mining companies sharply lower.
More than a dozen central banks, including those in Japan, Britain and Switzerland, will meet and set policy this week.
But most traders will likely focus on the Federal Reserve, which is expected to discuss a timeline on Wednesday for when it will slow down its purchases of bonds aimed at supporting the economy. Some economists expect the Fed to signal that it will begin phasing out bond purchases later this year. The central bank could then start raising interest rates the following year. But a slowdown in hiring, especially among hospitality and leisure workers, could dampen the recovery and delay the unwinding of central bank stimulus.
The Fed will also forecasts for economic growth and inflation.
Investors in the United States will have few other data points to guide them this week. The National Association of Realtors will release data on home sales on Wednesday. Existing home sales are expected to fall slightly in July, economists surveyed by Bloomberg predict, after two months of gains.
The drop in the S&P 500 in September signals a clear shift in the market’s tone. For this month, Wall Street had gone through a seven-month period that had seen stocks rise more than 20 percent as investors seemed to shake off any bad news.
The slump has come as investors weigh the risks of the coronavirus resurgence. A measure for determining whether reported economic data is better or worse than analysts expected, the Citigroup US Economic Surprise Index is at its lowest level since the start of the pandemic last year. Analysts also point to supply chain disruptions, leading to shortages from computer chips to building materials, as part of investor concerns.
Another factor looming over Wall Street is the plan to tax share buybacks. Senate Democrats are rallying around imposing a new tax on companies that buy back their shares, something that could potentially weaken a major source of demand for stocks.
This week, Democrats will also turn their attention to raising the federal borrowing limit. Analysts say that until the ceiling is raised, investor exuberance may be hard to find.
Alexandra Stevenson reporting contributed.