By Joy Wiltermuth and Mark DeCambre
U.S. stocks tumbled Monday, but finished well above session lows, as investors parsed the potential impact of a reeling property developer in China and traders positioned ahead of a two-day meeting of Federal Reserve policy makers that begins Tuesday.
How did stocks trade?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -2.02% fell 614.41 points, or 1.8%, to end at 33,970.47, booking its worst daily percentage decline since July 19. At its session low, the Dow was down more than 970 points.
The S&P 500 /zigman2/quotes/210599714/realtime SPX -2.54% declined 75.26 points, or 1.7%, finishing at 4,357.73, its biggest percentage drop since May 12.
The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -3.10% tumbled 2.2%, or 330.06 points, closing at 14,713.90, marking its worst percentage decline since May 12.
The small-cap Russell 2000 /zigman2/quotes/210598147/delayed RUT -1.93% fell 2.4% to end at 2,182.20.
What drove the market?
U.S. stocks closed lower Monday, but retraced significant earlier losses in the final hour of trade.
A downturn in China’s property market, which suffered heavy losses Monday with shares of China Evergrande /zigman2/quotes/208605330/delayed HK:3333 +3.91% falling 13% in Hong Kong, were blamed for dragging down U.S. and global equities.
Markets were closed in mainland China for a holiday, but the Hang Seng /zigman2/quotes/210598030/delayed HK:HSI -1.24% dropped over 3%.
“There’s plenty of headlines to hit stocks, and we’ve seen that happen,” said Sahak Manuelian, head of equity trading at Wedbush Securities in Los Angeles, pointing to Evergrande’s woes, geopolitical tensions, the coming FOMC meeting and jitters about the U.S. debt ceiling.
“I’m not sure what the scope of this will end up being,” Manuelian told MarketWatch, but he also said he’ll be watching to see if investors come out in force over the next few days to snap up downtrodden shares, as largely has been the case on any weakness year-to-date.
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.
A report from S&P Global Ratings on Monday said a default by debt-laden Evergrande would neither lead to a tidal wave of defaults nor mere ripples from a pebble in a pond but something between the two.
“Stories like Evergrande’s can be tough to digest, and it may take time to understand the true risk related to this type of event,” Lindsey Bell, chief investment strategist at Ally Invest, wrote in emailed comments. “Fear has been building in the market for a while, and selling pressure has intensified today with the VIX /zigman2/quotes/210598281/delayed VIX +19.10% “fear index” jumping to its highest level since May.”
Separately, investors will be closely watching for any talk of tapering at the Fed’s two-day policy meeting . The Fed has signaled it will begin tapering bond purchases before the end of the year, but the exact timing of the move remains unclear.