The market sell-off accelerates forward of the opening with Dow futures falling 650 factors
A trader works on the trading floor of the New York Stock Exchange (NYSE) in Manhattan, New York City, USA, 20 August 2021.
Andrew Kelly | Reuters
US stock futures started the week on a low minus as investors remained on the sidelines in September amid several emerging risks to the market.
Futures on the Dow Jones Industrial average lost 650 points, or 1.9%. S&P 500 futures fell 1.7%. Nasdaq 100 futures fell 1.7%. If the declines persist after the open, the blue-chip Dow will be set for its largest one-day decline since July 19, while the S&P 500 is poised to see its worst sell-off since May.
There were several reasons for the sale:
- Investors fear contagion of the financial markets from the troubled Chinese real estate market. Hong Kong stocks saw a big sell-off during Monday’s Asian trading session. The benchmark Hang Seng index plunged 4% as competitive developer China Evergrande Group was on the verge of default.
- The Federal Reserve kicks off a two-day meeting on Tuesday, and investors fear the central bank will signal that it is ready to pull back on monetary stimulus in the face of soaring inflation and improving labor markets.
- Covid cases due to the Delta variant remain at January levels as colder weather approaches in North America.
- September has the worst track record of any month, with an average decline of 0.4%, according to the Stock Trader’s Almanac. History shows that sales tend to pick up towards the back of the month.
- Investors are also concerned about brinkmanship in DC as the deadline for raising the debt ceiling is approaching. Returning to Washington from hiatus, Congress rushed to pass funding laws to avoid a government shutdown.
Stocks, which are linked to global growth, fell the most on Monday in pre-trading hours. Ford and Carrier Global lost more than 3%. General Motors and Boeing were each down around 2%. Nucor steel shed 2.8%
Energy stocks plummeted as WTI crude fell 2% on worries about the global economy. Occidental Petroleum, Hess and Devon Energy were among the biggest losers in pre-trading.
Bond prices rose as investors sought security. The move dragged 10-year government bond yields 4 basis points to 1.329%.
Big bank stocks took a hit as falling prices could hurt profits. Bank of America and JPMorgan Chase each lost more than 2% in early trading.
“We believe the mid-cycle transition will end with the rolling correction finally reaching the S&P 500,” wrote Mike Wilson, US equity strategist at Morgan Stanley. “We point out downside risk to earnings revisions, consumer confidence and purchasing managers indices.”
Wilson said he believes a “destructive outcome” is more likely that will lead to a withdrawal of 20% or more. On Friday, the University of Michigan Consumer Sentiment Index stood at 71 in September, just above August’s level, which was its lowest level in 9 years.
The Cboe volatility index, Wall Street’s fear meter, jumped above 25 on Monday, its highest level since May.
Stocks have struggled in September in line with historical trends. For the month, the Dow is down 2.2%. The S&P 500 is about 2% lower and the Nasdaq Composite is 1.4% lower.
On Friday, the Dow Jones Industrial Average posted three consecutive weeks of losses for the first time since September 2020. The S&P 500 saw its largest trading volume since July 19 on Friday and more than doubled its 30-day average volume.
Friday coincided with the expiration of stock options, index options, stock futures, and index futures – a quarterly event known as “Quadruple Witching”. History shows that volatility increases around this event.
Fed Chairman Jerome Powell will hold a press conference on Wednesday to conclude the two-day session. Powell has said tapering could happen this year, but investors are waiting for more details, especially after the mixed economic data released since Powell’s last comment.
Some investors believe these are just normal market moves that can occur in September.
“The reasons for the decline this morning are the same as last week: China concerns (Evergrande, Regulation, COVID), Fed taking and possible tax hikes, but nothing new has come up this weekend to add to this morning’s declines to justify, ”Tom Essaye, founder of Sevens Report, said in a note.
Other risky assets fell on Monday. Bitcoin lost 8% to under $ 44,000.
Most raw materials were in the red. Gold was among the few assets in the green, rising 0.5% to $ 1,760.