Stocks Fall Sharply On Debt Worries
4:04 pm Monday, September 20th, 2021
Worries about spreading contagion from troubles in China’s property market sent U.S. stocks toward their steepest declines in months on Monday.
Starting in Hong Kong, the Hang Seng index fell 3.3% as reports indicated that Evergrande — one of China’s largest property developers — is on the brink of defaulting on its $300 million in debt. Markets in China, Japan, and South Korea were closed for holidays.
There are some concerns that the Evergrande situation could have a contagion effect beyond China, but there are also more relevant issues that U.S. investors have had to consider. Those have to with the seeming disarray in Congress, which still needs to address the debt ceiling, fund the government, and rally more support for infrastructure.
The weak price action amid this wall of worry has investors de-risking. Ten of the 11 S&P 500 sectors are trading lower, declining issues are outpacing advancing issues by an 8:1 margin at the NYSE, WTI crude futures are down 2.0% to $70.36/bbl, and the 10-yr yield is down six basis points to 1.31% amid defensive positioning.
The energy (-3.7%), financials (-3.1%), and materials (-2.7%) sectors were the weakest performers, but the mega-caps are exerting more influential weakness. The Vanguard Mega Cap Growth ETF (MGK 239.13, -6.20, -2.5) is currently down 2.5%.
The utilities sector (+0.1%) is the only sector trading higher while shares of Pfizer (PFE 44.01, +01.2, +0.3%) are showing relative strength amid some encouraging vaccine news.
Briefly, Pfizer provided positive topline results for its COVID-19 vaccine trial in children 5 to 11 years old. In addition, an FDA panel unanimously recommended the booster shot for people 65 years and older and individuals at high risk of severe disease.
Separately, the NAHB Housing Market Index increased to 76.0 in September (consensus 74.0) from 75.0 in August, reflecting a slight uptick in homebuilder sentiment. On a related note, D.R. Horton (DHI) lowered its Q4 revenue guidance due to continuing significant disruptions in the supply chain.
