The Dow Jones Industrial Average closed down 1.78% to 33970.47 points and the S&P 500 fell 1.70% to 4,357.73 points – the biggest drop since May.
For its part, the Nasdaq Technology Index declined by 2.19% to settle at 14,713.90 points.
The Russell 2000 Index (which includes listed companies with the lowest market capitalization) fell 2.4% (down nearly 4%), in what was the biggest drop since May.
Investors around the world are paying increasing attention to the Chinese real estate giant Evergrande, which is facing bankruptcy. This led to today’s session not only the US stock exchanges but also the Asian and European stock markets which posted losses.
Last weekend, CNN Business said China was facing a potential “Lehman moment,” but Wall Street, for now, isn’t bothered. And it was “right now” that stock exchanges around the world, not just the US, are trading on negative territory throughout the day due to concerns surrounding this potential crash in Evergrande, as happened 13 years ago with Lehman Brothers in North America – an episode that showed How the collapse of one entity could send shock waves around the world.
“There are those who fear that the collapse of the Evergrande would have systemic risks, along with the impact of Lehman’s fall on the US stock market,” Ed Yardeni, head of Yardeni Research, said last Thursday in an analytical note. by CNN Business.
Like the US bank, Evergrande is a huge company: It has 200,000 employees, generated more than $110 billion in sales last year and has more than 1,200 projects in the pipeline, Reuters reports.
Evergrande sank 10% today on the Hong Kong stock exchange and has already lost 84% this year. Banks, Chinese insurance companies and other real estate companies have also been sanctioned.
Thus, fears are growing that the crisis in Evergrande – which holds about 6.5% of all debt held by the Chinese real estate sector – will eventually affect the entire financial system. In recent weeks, the company has warned investors about cash flow problems, saying it could default if it fails to raise money quickly.
Evergrande was supposed to pay interest on some bank loans on Monday, Bloomberg confirms — adding that Chinese officials recently told the country’s largest banks that they would not receive such payments.
Investors are also in “wait mode” at the US Federal Reserve, which begins tomorrow’s two-day monetary policy meeting.
Many expected the Fed could announce the start of “tapering,” which would entail debt buying]but with a disappointing August labor market report, that may be less likely now, notes CNN.
In addition, data released last week that rising inflation in the US is beginning to show signs of slowing, eased fears that this month the Fed will announce the start of “tapping.” But the gradual withdrawal of stimulus (ie through debt buying) will eventually happen, and the uncertainty about the timing has called investors to wariness.
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