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By Alex Eule
| Monday, September 20 The
Selloff Arrives. Talk of a looming
correction has been building for weeks, partly because of a long
rally and partly because of growing uncertainties around monetary policy,
Covid-19, inflation, the job market, and slowing economic growth. But the
worries hadn't showed up in stocks, at least not in any serious way. Stocks
have been sliding a bit, but they've stayed close to all-time highs. The
Cboe Volatility Index, or VIX,
which is known more casually known as the Fear Index, has been relatively
subdued. But
investors woke up to a new world this morning-- at least for a day. The
trouble stems from China, where a major property developer called China
Evergrande Group is at risk of defaulting
on $300 billion worth of debt. That was enough to resurface those other
worries that investors had swept under the rug. The S&P
500 fell 1.7% on the day, with 450 stocks
declining against just 50 gainers. The tech-heavy Nasdaq
Composite was off 2.2%, with investors even selling generally
resilient Big Tech stocks. For both indexes, it was their worst
day since May 12. The VIX
spiked 24%, to its highest level since May. Investors sought safety in bonds,
pushing the yield on the 10-year Treasury down six basis points, to
1.308%. Contagion
became the word of the day, with some wondering whether this
was China's Lehman Brothers moment, the bank collapse that
triggered the 2008-2009 global financial crisis. But LPL
Financial's Ryan Detrick makes the point that Evegrande's substantial
debt load isn't held by Chinese banks, as much as global mutual funds
and some corporations. That should reduce the domino effect of any
default. Barron's Jack
Denton has more on Evergrande here. Ultimately,
today's decline was less about Evergrande and more about the frothy
market everyone has been worried about. Here's Jamie
Cox, managing partner for Harris Financial
Group: We are in an
information vacuum at the moment. The Evergrande situation, although big and
impactful, isn't the reason for this selloff. Rather, stalemates in Congress
on the debt ceiling, worries on policy changes or mistakes in monetary
policy, and a litany of proposed tax increases have dampened the mood for investors.
When this occurs, corrections happen. While it was
a rough day for markets, investors seemed a bit more comfortable by the
end of the trading session. Markets rallied into the close, trimming the
losses. The Dow Jones Industrial
Average finished the day
down 614 points. At 3:17 p.m., 43 minutes before the close, it
had been down 972 points. The late rally could be good news for
tomorrow. |
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DJIA:
-1.78% to 33,970.47 The Hot
Stock: American Airlines
Group +3.0% Best Sector:
Utilities -0.2%
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