Wall Street shares closed sharply lower on Monday, reflecting losses abroad and giving the S&P 500 Index its biggest drop in four months.

Concerns about over-indebtedness Chinese real estate developers – and the damage they could do to investors around the world if they default – has spilled over into the markets. Investors are also concerned that the United States The Federal Reserve could report this week that it consider withdrawing some of the support measures it gives to the markets and the economy.

The S&P 500 lost 75.26 points, or 1.7%, to 4,357.73, its biggest drop since May. At one point, the benchmark was down 2.9%, the biggest drop since last October. The S&P 500 was coming off two weeks of losses and is on track for its first monthly decline since January. The S&P 500 has lasted unusually long with no pullbacks of 5% or more.

The Dow Jones Industrial Average lost 614.41 points, or 1.8%, to 33,970.47. The blue chip index briefly lost 971 points. The Nasdaq lost 330.06 points, or 2.2%, to 14,713.90. The Hang Seng, Hong Kong’s main index, fell 3.3% for its biggest loss since July. European markets fell around 2%.

“What has happened here is that the list of risks has finally become too long to ignore,” said Michael Arone, chief investment strategist at State Street Global Advisors. “There is just a lot of uncertainty at a difficult seasonal time for the markets.”

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.

The fear is that a potential collapse there could set off a chain reaction in China’s real estate development industry and spill over into the wider financial system, in the same way the Lehman Brothers bankruptcy ignited the crisis. financial 2008 and the Great Recession. These real estate companies have been major engines of China’s economy, which is the second largest in the world.

If they fail to repay their debts, the heavy losses suffered by investors who hold their bonds would raise concerns about their financial strength. These bondholders could also be forced to sell other independent investments to raise funds, which could hurt prices in seemingly independent markets. It’s a product of how global markets have become tightly connected, and it’s a concept the financial world calls “contagion.”

Many analysts say they expect the Chinese government to prevent such a scenario, and it doesn’t look like a Lehman-type moment. Still, any hint of uncertainty may be enough to shock Wall Street after the S&P 500 has climbed almost uninterruptedly since October.

Besides Evergrande, there are several other concerns lurking beneath the generally calm surface of the stock market. In addition to the possible announcement by the Fed of a relaxation of the accelerator on its support for the economy, Congress might opt ​​for a destructive chicken game before allowing the US Treasury to borrow more money and the COVID-19 pandemic continues to weigh on the global economy.

Whatever the main cause of Monday’s market collapse, some analysts said such a drop was due. The S&P 500 hasn’t even seen a 5% drop from a high since October, and the almost unstoppable rise has left stocks more expensive and with less margin for error.

All the worries have prompted some on Wall Street to predict future stock declines. Morgan Stanley strategists said on Monday that conditions could ripen to cause the S&P 500 to fall 20% or more. They pointed to weakening buyer confidence, the potential for higher taxes and lower prices. ‘inflation to undermine corporate profits and other signs that the economy’s growth may slow sharply.

Even if the economy can avoid this worse-than-expected slowdown, Morgan Stanley’s Michael Wilson said stocks could nonetheless fall by around 10% as the Fed cuts support for markets. The Fed is due to release its latest update on economic policy and interest rates on Wednesday.

Earlier this month, Stifel strategist Barry Bannister said he expects the S&P 500 to decline 10% to 15% in the last three months of the year. He cited the reduction in support by the Fed, among other factors. Bank of America strategist Savita Subramanian also set a target of 4,250 for the S&P 500 by the end of the year. That would be a 4.1% drop from Friday’s close.

Tech companies have led the market as a whole to the downside. Apple fell 2.1% and chipmaker Nvidia fell 3.6%.

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 1.31% from 1.37% on Friday night. Bank of America fell 3.4%.

Oil prices fell 2.3% and weighed on energy stocks. Exxon Mobil fell 2.7%.

Small business stocks were among the biggest losers. The Russell 2000 lost 54.67 points, or 2.4%, to 2,182.20.

Airlines were among the few bright spots. American Airlines rose 3% to dominate all S&P 500 winners. Delta Air Lines rose 1.7% and United Airlines added 1.6%.

Cryptocurrency traders also had a rough day. The price of Bitcoin has fallen nearly 8% to $ 43,717, according to Coindesk.

Investors will have the opportunity to take a closer look at how the downturn has affected a wide range of businesses when the next round of earnings begins in October. Strong earnings have been a key driver for stocks, but supply chain disruptions, higher costs and other factors could make it harder for companies to meet high expectations.

“The biggest strength in the market this year could become its biggest risk,” Arone said.

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