Wall St. sinks amid China's Evergrande contagion fears, US debt politics

Stock market news live updates: Wall St. sinks amid China's Evergrande contagion fears, US debt politics
Emily McCormick·Reporter
Mon, September 20, 2021, 11:12 AM

Stocks plunged on Monday, with major indices tumbling by over 2% during the. afternoon session, as investors nervously eyed the potential ripple effects of the default of a major Chinese real estate company, as well as ongoing debates over the debt limit in Washington.

After defying gravity for most of the summer, September is shaping up to be a tough month for markets, with major benchmarks in retreat for three consecutive weeks. At Wall Street's opening bell, the Dow sank by more than 500 points, while the S&P 500 also dropped by nearly 70 points, adding to losses from last week. The CBOE Volatility Index, or Vix (^VIX), jumped by more than 15% to its highest since August, as a confluence of risks roiled markets.

Shares of China Evergrande Group (3333.HK) plunged by more than 10% on the Hong Kong Stock Exchange as fears mounted that the Chinese real estate juggernaut would collapse under a major debt burden, impacting shareholders, bondholders and potentially triggering turmoil elsewhere across global markets. The specter of a broader crackdown by the Chinese government on Hong Kong's real estate sector further added to concerns.

"While the Evergrande situation is front and center, the reality is, stock market valuations are overstretched and the market has enjoyed too long of a break from volatility and Monday's stock market declines are not surprising," said David Bahnsen, chief investment officer at wealth management firm The Bahnsen Group, with over $3 billion in assets under management.

Meanwhile, heated debates in Washington over increasing the government's borrowing limit built on the risk-off tone in markets. U.S. Treasury Secretary Janet Yellen called for Congress to raise the U.S. debt ceiling again in a Wall Street Journal op-ed, and suggested that to do otherwise would risk leaving the government to default on payments and generate "widespread economic catastrophe."

The U.S. House is set to vote this week on the debt ceiling and a stopgap spending measure to keep the government operating past the end of the fiscal year at the end of September.

Even heading into Monday's session, the three major U.S. stock indexes had dipped so far in September amid escalating concerns over the Delta variant, pace of the economic recovery, inflation and path forward for monetary and fiscal policy. Retail sales data last week suggested the consumer was turning back towards goods rather than services spending amid the latest wave of the coronavirus, and still-weak consumer sentiment data suggested many individuals were becoming increasingly concerned about inflationary pressures.

And on the monetary policy front, the prospects of a near-term shift to present ultra-accommodative policy posturing from the Fed has also injected additional uncertainty into markets. The Federal Open Market Committee is slated to hold its two-day policy-setting meeting Tuesday and Wednesday, with the event culminating in a new monetary policy statement, update economic projections, and press conference from Federal Reserve Chair Jerome Powell.

One of the major focuses at this week's meeting will be about whether the Federal Reserve ramps up its signaling around when it will begin to taper its crisis-era asset purchase program. The central bank has suggested this quantitative easing — which currently comprises purchases of $120 billion monthly in Treasurys and mortgage-backed securities — would begin once the economy made "substantial further progress" toward the Fed's goals on inflation and employment.

"While we readily admit that the Committee could make changes to the September statement to signal that tapering is drawing closer, we believe the soft August hiring print and recent surge in COVID cases added enough uncertainty to the economic outlook that would refrain officials from making substantive changes to the wording," Sam Bullard, senior economist for Wells Fargo, wrote in a note on Sunday.

"If the economic data improves sufficiently over the coming weeks, then Fed officials could use public comments throughout October to signal that tapering will commence in November," he added.

For investors, the Fed's move on tapering will be closely watched given that the asset purchases were one major tool the central bank used to bolster liquidity and support the economic recovery during the pandemic, and had by extension helped underpin stocks' rise to record highs.

Though stocks have lost some of their momentum in September so far, some strategists believe the move may be temporary.

"You have to look at where the crowding is, and right now, there's so much negative sentiment with regard to the market. It's why we have been buying this dip this week and telling our clients that we think the market setup is perfect for a pretty big rally for the rest of September and possibly the beginning of October," Eddie Ghabour, Key Advisors managing partner, told Yahoo Finance on Friday. "The next big hurdle we have to get through is the Fed meeting on Wednesday. If the Fed doesn't disappoint, I think it's a risk-on rally ... right now everyone is so pessimistic about the market, and in our opinion markets don't crash when everyone is positioned for it."

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1:09 p.m. ET: Stock selloff intensifies, Dow drops 800+ points, or 2.4%

The three major indexes added to losses intraday, with the Dow shedding more than 800 points as the afternoon session rolled in.

Here's where markets were trading Monday afternoon an hour before their close:

S&P 500 (^GSPC): 4,324.45, -108.54 (-2.45%)

Dow (^DJI): 33,746.53, -838.35 (-2.42%)

Nasdaq (^IXIC): 14,615.35, -428.21 (-2.85%)

Crude (CL=F): $70.56 per barrel, -$1.41 (-1.96%)

Gold (GC=F): $1,761.90 per ounce, +$10.50 (+0.6%)

10-year Treasury (^TNX): -7.1 bps to yield 1.299%

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11:40 a.m. ET: Caterpillar leads Dow lower as China's industrial restrictions weigh

Shares of industrial bellwether Caterpillar (CAT) sank in intraday trading, falling more than 4.5% to be the biggest decliner in the 30-stock Dow index as concerns over heightened industrial restrictions in China weighed on prices of iron ore and industrial stocks.

China has ratcheted up its curbs on steel production in effort to make progress toward a goal of reaching carbon neutrality by 2060, Bloomberg reported. China's industrial production had also already slowed more than expected in August, data last week showed. Concerns around China's heavily indebted property sector, as well as jitters over the fate of President Joe Biden's multi-trillion-dollar infrastructure bill have further weighed on industrial companies.

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11:22 a.m. ET: Bitcoin prices tumble as risk-off mood extends to crypto:

Cryptocurrency prices tracked the drop in the major equity indexes on Monday as concerns over China Evergrande rippled across financial markets.

Bitcoin (BTC-USD), the largest cryptocurrency by market capitalization, dropped by more than 10% to fall below $43,000 at session lows, according to Yahoo Finance data. This marked the lowest level since August 7.

Other cryptocurrency prices also fell during Monday's session. Ethereum (ETH-USD), for instance, dropped more. than 8% mid-morning to trade just above $3,000.

Mitch McConnell says the GOP will vote for the US to default on its debt
Ayelet Sheffey, Business Insider
Mon, September 20, 2021, 2:45 PM

Pelosi and Schumer said they would attach a debt-ceiling suspension to the government-funding bill.

McConnell quickly struck down the idea, saying the GOP would not vote for the legislation.

They effectively dared him to vote for the US to default on its debt, and he met their dare.

As the White House stressed the urgency of raising the debt ceiling to avoid a government default, House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer said on Monday that the House would pass legislation to fund the government that includes a debt-limit suspension through the end of next year.

It was a dare to Senate Minority Leader Mitch McConnell, who would need to lend some Republican votes for it to pass the Senate. He was unfazed.

"We will not support legislation that raises the debt limit," McConnell said after Pelosi and Schumer's announcement. "Democrats do not need our help."

Treasury Secretary Janet Yellen told Congress earlier this month that the government's money would likely run out in October because of financial uncertainty caused by the pandemic. Pelosi and Schumer said in a joint statement on Monday that the House would pass legislation before October to fund the government through the end of the year and tack on a debt-ceiling suspension through December "to once again meet our obligations and protect the full faith and credit of the United States."

"Addressing the debt limit is about meeting obligations the government has already made, like the bipartisan emergency COVID relief legislation from December as well as vital payments to Social Security recipients and our veterans," the lawmakers wrote. "Furthermore, as the Administration warned last week, a reckless Republican-forced default could plunge the country into a recession."

Republican lawmakers have said they won't get involved with raising the debt limit and want Democrats to go at it alone, citing their "irresponsible spending" on a $3.5 trillion social-spending bill. By tacking on the debt ceiling to the government-funding legislation, Pelosi and Schumer are daring the GOP to vote for a default.

"The American people expect our Republican colleagues to live up to their responsibilities and make good on the debts they proudly helped incur in the December 2020 '908' COVID package that helped American families and small businesses reeling from the COVID crisis," Pelosi and Schumer wrote, referring to the December stimulus package passed under President Donald Trump.

On Sunday, Pelosi wrote in a letter that every time the debt limit has needed to be raised, "Congress has addressed it in a bipartisan basis." On the same day, Yellen urged Congress to come together to raise the limit, citing the "economic catastrophe" that could result with the failure to do so.