U.S. stock futures began the week deeply in the red as investors continued to move to the sidelines in September amid several emerging risks for the market.
Futures on the Dow Jones Industrial Average lost more than 630 points, S&P 500 futures fell 1.3 percent and Nasdaq futures dropped 1.1 percent.
There were a number of reasons for the selloff:
- Investors fear a contagion sweeping financial markets from the troubled China property market. Hong Kong equities saw a big selloff during the Asia trading session on Monday. The benchmark Hang Seng index plunged 4 percent, with embattled developer China Evergrande Group on the brink of default.
- The Federal Reserve begins a two-day meeting Tuesday and investors are worried the central bank will signal it is ready to start pulling away monetary stimulus amid surging inflation and improvement in the job market.
- Covid cases because of the delta variant remain at January levels as colder weather approaches in North America.
- September has the worst track record of any month, averaging a 0.4 percent decline, according to the Stock Trader’s Almanac. History shows the selling tends to pick up in the back half of the month.
Stocks linked to global growth were down the most in premarket trading Monday. Ford and Carrier Global lost more than 3 percent, General Motors and Boeing fell about 2 percent each, and Nucor steel shed 2.8 percent.
Energy stocks also tumbled, as WTI crude oil fell 2 percent on concerns about the global economy. Occidental Petroleum, Hess and Devon Energy were among the biggest losers in premarket trading.
Bond prices gained as investors sought safety. The move pushed the 10-year Treasury yield down by 4 basis points to 1.3 percent.
Big bank stocks took a hit as the falling rates may crimp profits. Bank of America and JPMorgan Chase were each down more than 2 percent in premarket trading.
“We think the mid-cycle transition will end with the rolling correction finally hitting the S&P 500,” wrote Mike Wilson, Morgan Stanley’s chief U.S. equity strategist. “We point to downside risk to earnings revisions, consumer confidence and PMIs.”
The Cboe Volatility index, Wall Street’s fear gauge, jumped above the 25 level on Monday, the highest since May.
The Dow has so far turned in three straight weeks of losses for the first time since September 2020. Friday coincided with the expiration of stock options, index options, stock futures and index futures — a quarterly event known as “quadruple witching.” History shows volatility tends to pick up around this event.
Federal Reserve Chairman Jerome Powell will hold a press conference Wednesday at the conclusion of the central bank’s two-day meeting. Powell has said tapering could occur this year, but investors are waiting for more specifics, particularly after mixed economic data released since Powell’s last comments.