Dow loses more than 700 points amid fear of Fed and Delta variant

The most important US stock indexes opened sharply lower on Monday as investors assessed a host of risks, including a possible change in the Federal Reserve’s guidance this week that could hurt corporate earnings.

The Dow Jones Industrial Average was down 746 points, or 2%, at 33,872 at 1:42 p.m. EST, while the broader S&P 500 equity index and the technology-heavy Nasdaq composite gained also each fell more than 2%. The declines extend a decline for Wall Street this month, with the benchmark S&P 500 losing nearly 1% last week just before Monday’s drop.

Although September has historically been a weak month for stocks, a number of factors are weighing on market sentiment. Investors remain concerned that the latest wave of COVID-19 could slow economic growth, while closely watching pressure from Congressional Democrats to raise taxes on wealthy Americans and big business as well as Republicans’ refusal to raise the US debt ceiling. Fears are also growing that Evergrande Group, a major Chinese real estate developer, could default on its hundreds of billions of debts and trigger a financial crisis beyond China.

“The Delta variant outbreak and its impact on the recovery played into September’s weak seasonal trend,” Piper Sandler analysts said in a report. “The prospect of higher taxes, [Fed] uncertainty over spending cuts and the debt ceiling, as well as the potential for systemic risk from the Evergrande crisis in China also contributed to sour sentiment. “

Large real estate companies and Hong Kong banks have lost ground amid lingering concerns about the potential spillover effects of Evergrande’s financial woes. The company was expected to pay no interest as rating companies predict it could default on its debt. Its shares fell 10.6% on Monday.

“With over $ 300 billion in liabilities and only $ 15 billion in cash, Evergrande is currently the most leveraged real estate developer in the world,” Ryan Detrick, chief market strategist for LPL Financial, told investors in a statement. note. “Concerns are growing that starting next week, she will not be able to pay $ 84 billion in interest owed (according to Bloomberg), as well as potentially missing a principal payment on at least one. of its loans. “

Fed policy update

The Fed is due to release its latest update on its economic policy and interest rates on Wednesday, with some analysts expecting policymakers to signal their intention to start withdrawing some of the extraordinary stimulus they have maintained during the pandemic, a process known as “taper”.

The central bank said higher costs for raw materials and consumer goods will always be temporary as the economy recovers, but analysts fear higher prices will persist and hurt corporate results while slashing prices. expenses.

Concerns are also growing about 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 of severe cuts were to come if the measure failed in the Senate.

Tech companies led the broader market lower on Monday. Apple fell 2.7% and chipmaker Nvidia lost 4.6%. Banks also suffered heavy losses due to falling bond yields. This impairs their ability to charge more lucrative interest rates on loans.

Utilities and other sectors considered less risky have held up better than the rest of the market. There were few bright spots. Pfizer held its own amid the general market downturn after announcing that its vaccine works for ages 5-11 and that it will soon seek US clearance for this age group.