Dow futures skid nearly 2% Monday as fear of market contagion from China’s Evergrande intensifies

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MARKET SNAPSHOT

U.S. stock futures fell sharply on Monday, with those for the Dow Jones Industrial Average tumbling 500 points, as Hong Kong-listed property companies came under fresh pressure.

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Investors also were positioning ahead of this week’s Federal Open Market Committee meeting.

How are stock futures trading?

  • Dow Jones Industrial Average futures dropped 671 points, or 1.9%, to 33,791.
  • S&P 500 futures fell 78 points, or 1.8%, to 4,343.
  • Nasdaq-100 futures tumbled 1.7%, or 260 points, to 15,066.

On Friday, the Dow Jones Industrial Average fell 166 points, or 0.5%, to 34,585, the S&P 500 declined 41 points, or 0.9%, to 4,433, and the Nasdaq Composite dropped 138 points, or 0.9%, to 15,044.

For the week, the Dow saw its third straight weekly decline, losing 0.1% and booking its longest weekly losing streak since the four weeks ending Sept. 25, 2020, according to Dow Jones Market Data. The S&P 500 fell 0.6% in a second straight week of losses, while the Nasdaq Composite lost 0.5%, also booking two straight weekly falls, according to FactSet.

What’s driving the market?

Is this the correction that some strategists have anticipated?

A downturn in China’s property market, which suffered heavy losses Monday, with shares of China Evergrande

falling 13% in Hong Kong, were threatening to drag stocks sharply lower.

Markets were closed in mainland China for a holiday, but the Hang Seng dropped over 3%.

Read: Evergrande fears send stock market tumbling: Here’s what investors need to know about the China property giant

The 8.25% Evergrande bond that has interest payments due this week was trading at around 29 cents to the dollar on Monday, according to Reuters.

That is as Wall Street investors are poised to pick up where they left off last week — on a weaker footing.  

“The dip is due to a variety of causes, including fading earnings estimates, uncertainty related to shifting monetary policy, and instability in the world’s second largest economy as a result of escalating crackdowns,” said Naeem Aslam, chief market analyst at AvaTrade, in a note to clients.

Markets will be closely watching for any talk of tapering at the Fed’s two-day policy meeting that begins Sept. 21. The central bank’s ultra-easy policy stance, put in place more than a year ago to help the economy cope with the pandemic, looks untenable to some given spikes in inflation.

The economy has been giving off mixed signals, though, amid rising cases of coronavirus due to the delta variant. Friday’s losses for Wall Street came as a reading on consumer sentiment held close to a roughly 10-year low.

Analysts also were discussing the inability, so far, of Congress to increase the debt ceiling.

“Investors already had a lot to digest recently, [and] the debt crisis in both of the world’s two biggest economies (Evergrande & U.S. debt ceiling) combined with uncertainties about the Fed’s decision this week about the timeline for any tapering are denting market sentiment,” said Pierre Veyret, technical analyst at ActivTrades.

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