The S&P 500 just dropped 2%. Why is this impacting ASX 200 shares?

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It was a painful time for the S&P 500 Index (SP: .INX) overnight. The S&P 500 dropped by 2.04% to 4,353 points. That’s one of the worst drops since the onset of the COVID-19 global pandemic.

For readers that don’t know, the S&P 500 is a list of 500 of the biggest and most profitable businesses in the US (and the world).

There are many names in the index that readers have probably heard of like Apple, Microsoft, Amazon.com, Alphabet (Google), Facebook, Tesla, Nvidia, Berkshire Hathaway, JPMorgan Chase, Johnson & Johnson, Visa, Procter & Gamble, Walt Disney, PayPal, Mastercard, Adobe, Salesforce, Netflix, Pfizer and so on.

Not only does the S&P 500 generate earnings from across the globe, but the US share market is also very influential on the rest of the capital markets around the world. As the biggest stock market, the US market can give signals that global investors watch and take actions on.

ASX shares also have a habit of moving upwards or downwards when the S&P 500 also has a very positive or negative day.

Looking at some of the biggest businesses in the US, the Apple share price fell 2.4%, the Microsoft share price dropped 3.6%, the Amazon.com share price went down, the Amazon.com share price declined 2.6%, the Alphabet share price sank 3.7%.

Many ASX shares have opened in negative territory this morning.

Why did the S&P 500 drop so much?

Only investors selling would be able to answer why they are willing to accept prices materially lower than yesterday.

One of the main changes overnight was that the US Treasury bond yields increased. The 30-year treasury bond yield jumped around 10 basis points, whilst oil prices also dropped. Interest rates can have an impact on asset valuations.

But, reporting by Bloomberg also pointed to some ongoing political drama in the US that could have been a catalyst for the drop. The media outlet reported:

During a Senate hearing, Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen both warned that a US default due to a failure to raise the debt ceiling would have catastrophic consequences. Republicans blocked a Democratic move in the Senate to raise the debt limit.

Heated remarks from Senator Elizabeth Warren also weighed on markets. After slamming Powell on his track record over financial regulation, Warren said he’s a “dangerous man to head up the Fed” and that’s why she’ll oppose his re-nomination.

What have ASX 200 shares done in early trading?

Looking at some of the biggest businesses on the ASX, there are also some material declines in the S&P/ASX 200 Index (ASX: XJO), following on from the S&P 500. The ASX 200 as a whole is down 1.4%.

The Commonwealth Bank of Australia (ASX: CBA) share price has fallen 0.8%, the BHP Group Ltd (ASX: BHP) share price has dropped 2.5%, the Afterpay Ltd (ASX: APT) share price has declined 3.7%, the Zip Co Ltd (ASX: Z1P) share price is down 4.5% and the Xero Limited (ASX: XRO) share price has fallen 2.5%.