A trader works on the floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., August 20, 2021.
Andrew Kelly | Reuters
U.S. stocks began the week deeply in the red as investors continued to move to the sidelines in September amid several emerging risks for the market.
The Dow Jones Industrial average lost 500 points, or 1.4%, set for its biggest one day drop since July 19. The blue-chip Dow pared back some of the losses soon after the open when it dropped nearly 600 points. The S&P 500 fell 1.5%. The tech-heavy Nasdaq Composite dropped 1.8%.
There were a number of reasons for the sell-off:
Stocks linked to global growth were down the most Monday. Ford and Carrier Global lost more than 3%. General Motors and Boeing fell about 2% each. Nucor steel shed 2.8%
Energy stocks tumbled as WTI crude oil fell 2% on concerns about the global economy. Occidental Petroleum, Hess and Devon Energy were among the biggest losers.
Bond prices gained as investors sought safety. The move pushed the 10-year Treasury yield down by 5 basis points to 1.325%.
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%.
"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."
Wilson said he believes a "destructive outcome" is looking more likely that results in a pullback of 20% or more. On Friday, University of Michigan's September consumer sentiment index came in at 71, just slightly above the August level that was the lowest in 9 years.
The Cboe Volatility index, Wall Street's fear gauge, jumped above the 26 level on Monday, the highest since May.
Amid Monday's sell-off, a number of classic defensive stocks provided the broader market with some support. Pfizer, Walmart, Procter & Gamble and Merck all traded in the green.
Stocks have struggled so far in September in line with historical trends. For the month, the Dow is off 3.3%. The S&P 500 is lower by 3.2% and the Nasdaq Composite is lower by 2.9%.
On Friday, the Dow Jones Industrial Average turned in three straight weeks of losses for the first time since September 2020. The S&P 500 saw its biggest trading volume Friday since July 19, more than doubling its 30-day average volume.
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.
Fed Chair Jerome Powell will hold a press conference Wednesday at the conclusion of the two-day meeting. Powell has said the so-called tapering could occur this year, but investors are waiting for more specifics, particularly after mixed economic data released since Powell's last comments.
Some investors believe this is just normal market action that can occur in September.
"The reasons for drop this morning are the same as last week: China concerns (Evergrande, regulation, COVID), Fed tapering and possible tax hikes, but nothing new occurred this weekend to justify this mornings' declines," Tom Essaye, founder of Sevens Report, said in a note.
Other risky assets declined on Monday. Bitcoin lost as much as 10% to below $43,000.
Most commodities were in the red. Gold was among the few assets in the green, adding 0.5% to $1,760.