This post was originally published on this site
Investing.com — U.S. stock markets tumbled at the open on a combination of worries from China’s mounting debt problems to the outcome of this week’s policy meeting at the Federal Reserve.
By 9:35 AM ET (1335 GMT), the Dow Jones Industrial Average was down 488 points, or 1.4%, at 34.097 points, its lowest in two months. The S&P 500 was down 1.5%, also at a two-month low. while the NASDAQ Composite was down 1.6% at a one-month low.
Market sentiment has clearly deteriorated in recent days, with a series of warnings about a possible correction from the likes of Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS). The latter’s analysts said in a note to clients at the weekend that they see an increasing risk of a 20% drop in the S&P 500, against a backdrop of gradually tightening monetary policy and the withdrawal of fiscal stimulus in the U.S., as well as foreign risks such as a debt crisis in China and a slowdown in Europe caused by soaring energy prices.
The U.S. economy is starting to slow as the sugar rush of pandemic-era stimulus starts to fade. Stronger-than-expected retail sales failed to convince the market last week of the consumer’s strength, especially after the University of Michigan’s consumer sentiment survey came out on the weak side. Analysts at Bank of New York Mellon (NYSE:BK) said in a note to clients that they expect real consumer spending to slow to an annualized growth rate of 4.2% in the fourth quarter, with further downgrades quite likely. They added that GDP growth is currently running at around 3.5% on an annualized basis, well below the rates seen earlier this year.
At the same time, expectations that the Fed will start to run down its bond purchases have also hardened. Julia Coronado, founder of MacroPolicy Perspectives, said via Twitter (NYSE:TWTR) that a majority of her survey respondents expect a “strong signal” from the Fed this week that it is about to start tapering asset purchases, most likely beginning in November. Across the Pacific meanwhile, the closure of mainland markets for a public holiday couldn’t hide the increasing sense of panic as China Evergrande Group, the country’s second-largest real estate developer, inches toward a likely default on Thursday. The Hong Kong Hang Seng index fell over 3% on Monday, with other real estate developers falling 10% or more.
