Wall Street fell for a fourth straight day Tuesday, adding to its worst decline in months after a day of turbulent trading.
After swinging between gains and losses, the S&P 500 ended the day marginally lower. On Monday, the index dropped 1.7%, its sharpest fall since May, as fears of a potential default at property giant China Evergrande Group sent shock waves through global markets.
The Stoxx Europe 600 rose 1% Tuesday, rebounding from a 1.7% slump the previous day. In Asia, the Hang Seng Index in Hong Kong rose 0.5% after dropping 3.3% Monday.
Yields on government bonds rose as investors sold some of their safer assets. The yield on 10-year Treasury notes rose one basis point, or 0.01 percentage points, to 1.32%. Oil prices also rose, with West Texas Intermediate, the U.S. crude bench mark, ticking up 0.3% to $70.51 a barrel.
The trigger for this week’s decline was rising concern about Evergrande, one of China’s biggest developers. The company is saddled with enormous debts that it is unlikely to be able to pay without government support. Evergrande has an interest payment of more than $80 million due this week, and so far, there is little indication Beijing will come to its rescue.
For global investors, the worry is that a collapse of a company of Evergrande’s size could ripple through the Chinese economy and beyond. Analysts at Mizuho, a Japanese bank, said Evergrande was a casualty of the Chinese government’s policy goals of reducing inequality, “where a property market rally is therefore undesirable.” And so, China is imposing tight credit conditions to rein in risky borrowing habits of property developers.
These measures could slow China’s economy and reduce consumer demand for foreign goods, a risk that had not been fully considered by investors in U.S. and European stock markets, the analysts said.
But Wall Street has been uneasy for weeks. The S&P 500 touched a record high Sept. 2 and has steadily declined since then. It has dropped by a small amount nearly every day, and with Monday’s swoon included that adds up to a 3.7% slide for the index so far in September. Should the losses hold, this will be the first monthly decline for the index since January and its worst monthly showing in a year.
Chief among investors’ concerns is what the Federal Reserve might say Wednesday about its plans to scale back its enormous bond-buying program. The purchases have helped prop up the economy and the stock market during the pandemic, and some analysts expect that investors will be in more of a buying mood once the central bank releases its latest policy statement Wednesday afternoon.
The Fed is also expected to update its quarterly projections for growth, unemployment and inflation through 2024, and those could help investors reset expectations for the withdrawal of economic support or eventual interest rate increases.
“Markets are already expecting a faster pace of rate hikes than what the Fed itself has been saying,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments. “If we get a hawkish tilt from those 2024 projections, hypothetically the market has already caught up to that.”
Also weighing on sentiment is the U.S. debt limit. Treasury Secretary Janet Yellen warned this month that the U.S. could default on its debt in October if Congress did not raise or suspend the debt limit. She said that the exact timing remained unclear but that time to avert an economic catastrophe was running out.
The House is expected to take up legislation Tuesday that would lift the limit on federal borrowing through the end of 2022, a measure largely opposed by Republicans.
Key economic gauges have also weighed on investor sentiment over the month. The Consumer Price Index rose 5.3% in August from a year earlier, the Department of Labor reported last week — gains that could keep pressure on the Fed to start withdrawing its support for the economy sooner rather than later.
U.S. consumer sentiment rose 1% in September, but the small gain still placed the index at its lowest level in more than a decade, according to preliminary data from the University of Michigan’s gauge of consumer sentiment. Retail sales have also been swinging month over month, with consumer spending rising slightly in August, the Department of Commerce reported last week, after a sharp decline in July.
This article originally appeared in The New York Times.