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Damian J. Troise and Stan Choe
Stocks collapsed on Wall Street on Monday in a broad sell-off that extends an already weak streak for major indices. Concerns about debt-engulfed Chinese real estate developers – and the damage they could do to investors around the world if they default – are spilling over into the markets.
The Dow Jones Industrial Average fell 495 points, or 1.4%, to 34,086, on course for its worst sell since July.
The S&P 500 fell 1.6%. The benchmark index has not fallen more than 1% since mid-August. It also just suffered two weeks of losses and is on track for its first monthly drop since January.
The Nasdaq fell 1.7%. Tech companies have led the market as a whole to the downside. Apple fell 1% and chipmaker Nvidia lost 2.7%.
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Banks suffered heavy losses as bond yields fell. This impairs their ability to charge more lucrative interest rates on loans. The 10-year Treasury yield fell to 1.32% from 1.37% on Friday night. Bank of America fell 3.1%.
Oil prices fell 1.3% and weighed on energy stocks.
Utilities and other sectors considered less risky have held up better than the rest of the market.
Concerns about Chinese real estate developers and debt have recently focused on Evergrande, one of China’s largest real estate developers, which appears to be unable to repay its debts.
Many analysts say they expect the Chinese government to prevent an explosion severe enough to cause cascading losses in the markets. But any hint of uncertainty may be enough to upend Wall Street, after the S&P 500 has surged higher almost uninterruptedly since October.
“While the Evergrande situation is in the foreground, the reality is that stock valuations are exaggerated and the market has enjoyed too long a pause from volatility and Monday’s stock declines are not surprising “, David Bahnsen, director of wealth investments. management company The Bahnsen Group said in a research note.
The Hang Seng, Hong Kong’s main index, fell 3.3% for its biggest loss since July. Many other markets in Asia have been closed for the holidays. European markets fell around 2%.
Investors are also watching the Federal Reserve’s reaction to shocks from the broader economic recovery. The central bank has indicated that it will eventually cut back on bond purchases, which has helped keep interest rates low. The timing of this move remains unknown.
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The Fed is due to release its latest update on economic policy and interest rates on Wednesday.
Other investor concerns include a potentially messy political fight in Washington over the US debt ceiling. House Democrats said on Friday they plan to decide this week to suspend the government’s borrowing power cap, and the White House has stepped up pressure on Republicans by warning state and local governments that severe cuts were to come if the measure failed in the Senate.
Contribution: Jessica Menton, USA TODAY
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