S&P Slumps as China Contagion Fears Trigger Spike in Volatility

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S&P Slumps as China Contagion Fears Trigger Spike in Volatility
Credit: © Reuters.

By Yasin Ebrahim

Investing.com – The S&P 500 slipped further into the red Monday, amid a jolt of volatility that swept through the market as investors mulled the broader implications of a liquidity crisis at China Evergrande Group.

The S&P 500 fell 2%, the Dow Jones Industrial Average slipped 2%, or 766 points, the Nasdaq fell 2.6%.

China Evergrande Group, the second largest property company in China, has more than $300 billion in liabilities, and reports suggest it won’t hit an interest payment deadline on its offshore bonds due Thursday.

Failure of the Chinese property giant to make good on its debt payments could force it into bankruptcy, sparking a wider liquidity crisis that some fear could trigger an economic crisis in China and severely hamper global growth.

The S&P 500 VIX Futures – Wall Street's so-called fear gauge - surged more than 30% in a sign that investors are growing nervous about the spillover of a economic crisis in China at time when Beijing has been cracking down on debt in sectors such as real estate.

“The source of the angst is ongoing worries about the broader implications of worsening developments at the beleaguered China Evergrande Group  […] reports that more companies in the property sector might be prospective targets for Beijing’s regulators,” Daiwa Capital Markets said in a note.

Fears of the potential economic crisis in China, the largest energy consumer, sent oil prices tumbling, and triggered a more than 4% drop in energy.

Devon Energy (NYSE: DVN ), APA (NASDAQ: APA ), Hess (NYSE: HES ) led the declines to the downside in energy.

Financials, meanwhile, were dragged lower by falling bank stocks amid a slump in U.S. Treasury yields, with Citigroup (NYSE: C ), Fifth Third Bancorp (NASDAQ: FITB ), and SVB Financial (NASDAQ: SIVB ) nursing heavy losses.

Tech also participated in the broad-based selloff as investors appeared to take a breather from the ‘buy the dip’ mentally ahead of the Federal Reserve’s two-day meeting starting Tuesday.

Google-parent Alphabet (NASDAQ: GOOGL ), Apple (NASDAQ: AAPL ), Facebook (NASDAQ: FB ), Amazon (NASDAQ: AMZN ) and Microsoft (NASDAQ: MSFT ), fell more than 1%.

Travel stocks, however, sidestepped the market malaise as airlines were boosted by easing travel restrictions.

The U.S. is set to ease travel restrictions for international visitors who are vaccinated against Covid-19 in November, the White House said Monday.

American Airlines (NASDAQ: AAL ), United Airlines (NASDAQ: UAL ), and Delta Air Lines (NYSE: DAL ) traded above the flatline.  

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