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Wall Street Tumbles at Open on Fed, China Debt Fears; Dow Down 490 Pts

Stock MarketsSep 20, 2021 09:45AM ET
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© Reuters.

By Geoffrey Smith 

Investing.com -- U.S. stock markets tumbled at the open on a combination of worries from China's mounting debt problems to the outcome of this week's policy meeting at the Federal Reserve.

By 9:35 AM ET (1335 GMT), the Dow Jones Industrial Average was down 488 points, or 1.4%, at 34.097 points, its lowest in two months. The S&P 500 was down 1.5%, also at a two-month low. while the NASDAQ Composite was down 1.6% at a one-month low. 

Market sentiment has clearly deteriorated in recent days, with a series of warnings about a possible correction from the likes of Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS). The latter's analysts said in a note to clients this weekend that they see an increasing risk of a 20% drop in the S&P 500, against a backdrop of gradually tightening monetary policy and the withdrawal of fiscal stimulus in the U.S., as well as foreign risks such as a debt crisis in China and a slowdown in Europe caused by soaring energy prices.

The U.S. economy is starting to slow as the sugar rush of pandemic-era stimulus starts to fade. Stronger-than-expected retail sales failed to convince the market last week of the consumer's strength, especially after the University of Michigan's consumer sentiment survey came out on the weak side. Analysts at Bank of New York Mellon (NYSE:BK) said in a note to clients that they expect real consumer spending to slow to an annualized growth rate of 4.2% in the fourth quarter, with further downgrades quite likely. They added that GDP growth is currently running at around 3.5% on an annualized basis, well below the rates seen earlier this year.

At the same time, expectations that the Fed will start to run down its bond purchases have also hardened. Julia Coronado, founder of MacroPolicy Perspectives, said via Twitter (NYSE:TWTR) that a majority of her survey respondents expect a "strong signal" from the Fed this week that it is about to start tapering asset purchases, most likely beginning in November. Across the Pacific meanwhile, the closure of mainland markets for a public holiday couldn't hide the increasing sense of panic as China Evergrande Group, the country's second-largest real estate developer, inches toward a likely default on Thursday. The Hong Kong Hang Seng index fell over 3% on Monday, with other real estate developers falling 10% or more.

Stocks with high China exposure were among the biggest early losers: Caterpillar (NYSE:CAT) stock fell 4.0% while Alibaba ADRs (NYSE:BABA) fell 4.3%. Elsewhere, Coinbase Global  (NASDAQ:COIN) stock fell 4.0% as crypto assets once again demonstrated their high correlation to other risk assets. 

"This is just the beginning," said Daniel Lacalle, chief economist at Tressis in Madrid, via Twitter. He noted that property accounts for 25% of Chinese GDP, something that will make it difficult for the authorities to contain the fallout from a player of such size. Sharply rising borrowing costs for other developers have already translated into a collapse in prices for iron ore and steel, for which the property sector is the biggest customer. U.S. Steel (NYSE:X) stock was consequently down 6.1% while miner Freeport-McMoran (NYSE:FCX) stock was down 5.3%.

Airline stocks were among the outperformers, after a Financial Times report claiming that the U.S. administration is prepared to lift the ban on non-essential arrivals from the EU and U.K., ending 18 months of rupture on what have typically been the world's busiest long-haul routes. American Airlines (NASDAQ:AAL) stock rose 0.9% while Delta Air Lines (NYSE:DAL) lost a relatively modest 0.5%.

Wall Street Tumbles at Open on Fed, China Debt Fears; Dow Down 490 Pts
 

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Comments (18)
Alan Rice
Alan Rice Sep 20, 2021 11:59AM ET
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a downward blip. (Never invest more than you can afford to lose.)
Mario Rossi
Mario Rossi Sep 20, 2021 11:52AM ET
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China should pay for Covid they give to the world! It shall be 50 trillions dollars!!!
Me comment
Me comment Sep 20, 2021 11:06AM ET
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Analysts fears should dictate the market, get rid of the automated trading program. The market would be a whole lot less volital.
Kaveh Sun
Kaveh Sun Sep 20, 2021 10:58AM ET
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China=Everheadache
Pratt Man
Pratt Man Sep 20, 2021 10:48AM ET
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After the last taper, the market almost doubled.  The economy is fine, if not great....and earnings going forward for the next 12-24 months will be outstanding. Christmas sales will be a record, as shoppers celebrate a fading virus threat.
John Klan
John Klan Sep 20, 2021 10:44AM ET
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Buy a Hunter Biden painting and no new rules or regulations will apply to you or your business.
Eloy Rodrigo
Eloy Rodrigo Sep 20, 2021 10:44AM ET
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Take it easy, the printer is hot to throw up trillions more. 🤣
Srikanth Sampati
Srikanth Sampati Sep 20, 2021 10:44AM ET
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Investor scare tactic tantrum to keep the fed tantrum far away
Millennial Metals
Millennial Metals Sep 20, 2021 10:37AM ET
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Meanwhile, former tresaury sec. Steve Mnuchin opened a 2.5 billion dollar fund today. Sickening
John Klan
John Klan Sep 20, 2021 10:34AM ET
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We're 30 Trillion in debt and Biden wants to spend 5 Trillion more and they're worried about China? LOL
Pratt Man
Pratt Man Sep 20, 2021 10:34AM ET
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Trump's tax cut will cost us $10 trillion..and we got nothing for it. 72% of Americans said they didn't even notice the tax cut.
rob kealey
rob kealey Sep 20, 2021 10:34AM ET
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I guess your analysis is based on party affiliation. Very sad
Stephen Willis
Stephen Willis Sep 20, 2021 10:17AM ET
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let China fail
ben sc
ben sc Sep 20, 2021 10:13AM ET
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Many companies in Chyna are run like Evergrande.....
Millennial Metals
Millennial Metals Sep 20, 2021 10:13AM ET
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In the USA too
Rick Miller
Rick Miller Sep 20, 2021 10:12AM ET
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Its hilarious to see all the b.s. they come up with as NONE OF THIS has ANYTHING to do with what happened. After YEARS of study..I know what REALLY drives the markets. Its NEVER "Fed Fear".."Ahead of Backdoor Hole".."Coronavirus Fear on Monday but Not on Tuesday".."I Stubbed My Big Toe In Guatemala Dow Down 300"..they could raise interest rates and the markets drive to the moon! Because that ISN'T what drives the markets..(I BET MONEY ON THAT DAY..IT WILL HAPPEN LIKE THAT)..and the news will read "Markets Drive To All-Time Hige Despite Interest Rates"..that's why I win way more than I lose. 5% a year is GOOD they say..that's a joke..25% is a joke.
Timur Kunt
Timur Kunt Sep 20, 2021 10:12AM ET
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So what do you suggest ? How do you do ?
Stan Smith
Stan Smith Sep 20, 2021 9:58AM ET
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No worries..bail ins and bail outs incoming. They are a sign of a healthy economy and financial system right??. Stocks up!!
Adam Anderson
Adam Anderson Sep 20, 2021 9:58AM ET
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awesome lol best analysis right on point.
Mike Cherry
Mike Cherry Sep 20, 2021 9:56AM ET
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Im not stressing china its US we need to focus on
Waheed baloshi
Waheed baloshi Sep 20, 2021 9:55AM ET
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hello
Magnum Dong
Magnum Dong Sep 20, 2021 9:49AM ET
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why would you let a totalitarian country grow so much, now it's everybody's problem
Casador Del Oso
Casador Del Oso Sep 20, 2021 9:49AM ET
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greed, that's why
Tie Lin
Tie Lin Sep 20, 2021 9:49AM ET
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every single country is totalitarian, you just didn’t realized that
James Burnside
James Burnside Sep 20, 2021 9:49AM ET
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It is obvious neither one of you studied global economics. We are not an isolated country, we live on a planet called earth. Grow up, unless you want isolationism, then carry on.
Ziyad Yusuf
Ziyad Yusuf Sep 20, 2021 9:48AM ET
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490
 
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