S&P 500 Falls as China Credit Contagion Fears Deepen September Slide

© Reuters.

By Yasin Ebrahim

AiVIF.com – The S&P 500 suffered its biggest slump since May, amid fears a debt crisis at China Evergrande Group could spark credit crunch in China's crucial real estate sector, leading to a potential economic crisis in the world's second largest economy.    

The S&P 500 fell 1.7%, and is down about 5% from its recent highs. The Nasdaq fell 2.1%, and Dow Jones Industrial Average slipped 1.8%, or 614 points, though had fallen more than 900 points at the lows of the day. 

China Evergrande Group, the second largest property company in China, has more than $300 billion in liabilities, and reports suggest it won’t hit an interest payment deadline on its offshore bonds due Thursday.

Failure of the Chinese property giant to make good on its debt payments could force it into bankruptcy, sparking a wider liquidity crisis in real estate sector -- a key component of the nation's economy - that added to investor angst over growth, the impact of the Delta variant of the coronavirus, and ongoing budget negotiations on Capitol Hill. 

'The Evergrande crisis comes at a time when the Chinese consumer economy has slowed due to COVID-19 concerns ... this could combine to create growth challenges in China and many commodities," DA Davidson said in a note. "This creates more risk for U.S. equity investors, who are already navigating concerns about peak growth of U.S. GDP and corporate earnings, consumer hesitancy caused by the COVID Delta variant, inflation, and Congressional budget negotiations," it added.

Fears of the potential economic crisis in China, the largest energy consumer, sent oil prices tumbling, and triggered a more than 4% drop in energy.

Devon Energy (NYSE:DVN), APA (NASDAQ:APA), Hess (NYSE:HES) led the declines to the downside in energy.

Financials, meanwhile, were dragged lower by falling bank stocks amid a slump in U.S. Treasury yields, with Citigroup (NYSE:C), Fifth Third Bancorp (NASDAQ:FITB), and SVB Financial (NASDAQ:SIVB) nursing heavy losses.

Tech also participated in the broad-based selloff as investors appeared to take a breather from the ‘buy the dip’ mentally ahead of the Federal Reserve’s two-day meeting starting Tuesday.

Google-parent Alphabet (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT), ended mostly more than 1% lower. 

Travel stocks, however, sidestepped the market malaise as airlines were boosted by easing travel restrictions.

The U.S. is set to ease travel restrictions for international visitors who are vaccinated against Covid-19 in November, the White House said Monday.

American Airlines (NASDAQ:AAL), United Airlines (NASDAQ:UAL), and Delta Air Lines (NYSE:DAL) outperformed relative to broader-market meltdown.