US Stocks Suffer Biggest Drop Since May, Bitcoin Falls to $43K

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Key Takeaways

• US stocks slide on their worst day since early May as the Evergrande crisis stokes fears
• Bitcoin declines on Monday and continues its drop early Tuesday, trades near $42,000

US Stocks Fall Sharply as Evergrande Crisis Gathers Momentum

Fears of spreading risks for the global economy hit the financial markets on Monday. Following the looming troubles in China’s property market, particularly Evergrande’s debt crisis, investors took risk-off as global stocks retreated broadly.

As property developer China Evergrande Group is facing default on its crushing debt of more than $300bn, many market participants flocked to cash as a more liquid asset, or gold, traditionally regarded as a haven amid uncertainty.

As a result, riskier assets such as stocks, and bitcoin, plummeted. The Dow Jones Industrial Average dropped 614.41 points, or 1.78%, to close at 33,970.47. Earlier in the day, the benchmark index slipped as much as 2.5% or nearly 1000 points. The Dow was dragged lower by losses in industrial companies and financial mainstays.

The S&P500 shed 75.26 points, or 1.70%, to finish its worst day since May at 4,357.73. The tech-focused Nasdaq Composite fell 330.06 points, or 2.19%, to end the session at 14,713.90. Both the S&P500 and the Nasdaq Composite are on track to log their worst month since September last year.

Risks for the Economic Outlook Loom Ahead of Fed Meeting

Money managers are increasingly worried that should Evergrande fail to pay its debt, the fallout would be immense for shareholders. The embattled company owes billions of dollars to about 171 domestic banks and 121 other financial firms.

Therefore, analysts warn that the repercussions of bankruptcy would pose a threat to global growth.

Evergrande’s potential collapse is the latest risk to weigh on the market sentiment for stocks. For weeks, investors have been wary of a pullback in equities after a dizzying months-long rally lifted the major averages to record highs.

Furthermore, market participants are growing more cautious about the economic outlook after several reports indicated growth has been slowing. In addition, the US Federal Reserve is set to make its case for the health of the US economy at its two-day policy meeting today and tomorrow.

US central bankers gather to discuss the next steps for the Fed and, most importantly, a potential timeline to begin tapering, or reducing, the extraordinary monetary policy. Federal Reserve Chairman Jerome Powell will conclude the two-day meeting with a press conference on Wednesday.

Bitcoin and Cryptocurrencies Hit by China Uncertainty

Bitcoin fell sharply on Monday and continued to extend its slide on Tuesday. The number one cryptocurrency experienced a strong selloff that resulted in a 10% loss realized yesterday. The selling pressure in global equities translated to the digital currency market, erasing billions from major tokens.

The price of bitcoin remains depressed on Tuesday. The orange coin slid to a session low of $40,150, a price level that was last seen in early August. After a slight recovery, bitcoin is trading at levels near $43,000.

Other crypto assets tumbled to start the week, too. Ether, the second-largest cryptocurrency, dropped 10% on Monday, and a further 7% in the early hours of Tuesday. Price recovered a bit and the Ethereum token traded near $3,100 per coin earlier today.

Elsewhere in the Financial Markets

In other markets, European shares declined broadly as the market participants in the old continent feared Evergrande’s insolvency. The Stoxx Europe 600 lost 1.67% on Monday. Gold remained robust and gained about half a percent on Monday to finish the session at $1,765 per troy ounce.

Trading Ideas on Tuesday

Heading into the day, US futures appear to be aiming for a green open ahead of Tuesday’s session.  Futures tied to the Dow Jones, the S&P500 and the Nasdaq Composite were higher between 0.5% and 0.8%.

Trading opportunities today could be present in the stocks that hit the hardest yesterday. Among them, Goldman Sachs, which lost 3.4% on Monday. Caterpillar could be looking to bounce back from its 4.5% loss. JPMorgan Chase declined 3%. Tesla tumbled 3.9%, and Nvidia dropped 3.6% on Monday.