Dow, S&P 500 decline as morning rally fades
21 Sep 2021
U.S. stocks attempted to rebound on Tuesday as investors bought the dip a bit following the S&P 500’s worst day since May.
Gains were kept in check as investors awaited the end of the Federal Reserve’s two-day meeting, which kicked off Tuesday.
The Dow Jones Industrial average rose 48 points, or 0.3%. The S&P 500 gained 0.2% and the Nasdaq Composite added 0.3%.
Asian markets were stable overnight, helping sentiment in the U.S. after fears grew Monday that the liquidity crisis at Chinese developer Evergrande would lead to a global contagion. Hong Kong’s Hang Seng Index rose 0.5% after dropping more than 3% on Monday.
“There has already been a sharp bounce off Monday’s intraday low and the catalysts for the correction have yet to be resolved, so we would expect a bit more indigestion and begin adding risk back into the market on any further weakness as the bottoming process begins,” Canaccord Genuity Chief Market Strategist Tony Dwyer said in a note Tuesday.
On Monday, the S&P 500 slid 1.7% for its worst day since May 12. The Dow Jones Industrial Average plummeted 614 points, or 1.8%, for its biggest one-day drop since July 19. The Nasdaq Composite shed 2.2%.
Tuesday’s comeback was broad, but slight in magnitude with most major stocks inching only slightly higher. Uber shares were a standout, jumping 6% after raising its outlook for the third quarter.
Energy stocks also bounced big as oil snapped back after selling off Monday as the China property market situation caused concerns about overall global growth. ConocoPhillips was up 2%.
Investors are looking for more information from Fed Chairman Jerome Powell Tuesday about the central bank’s plans to taper its bond buying, specifically when that will happen. Powell said last month that he sees the Fed slowing its $120 billion in monthly purchases at some point this year.
The Fed will release its quarterly economic forecasts, the so-called dot plot, along with the statement on interest rates at 2 p.m. ET Wednesday. Powell will have a press conference after the announcements.
“We’re going to have to see proof that the Fed dot plots don’t come out in a way that spooks the market,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.
Struggling real estate developer China Evergrande Group teeters on the brink of default and is due to pay interest worth $83 million this Thursday, according to S&P Global Ratings. Analysts largely believe Evergrande will miss the interest payment and S&P sees a default as “likely,” which many worry could spread financial contagion the way Lehman Brothers did 13 years ago.
September is a historically volatile month for stocks and after the S&P 500’s 16% rally year-to-date, many investors have said the market is due for a pullback. Some strategists called Monday’s sell-off a buying opportunity.
“Chinese government officials are well aware of the headlines comparing Evergrande to Lehman,” said Ed Yardeni of Yardeni Research. “They are well aware of the consequences of letting the firm fail. So they’ll intervene to restructure it. When, they do, stock markets around the world should enjoy relief rallies.”
Also weighing on markets this month is the delta variant, which remains a global health threat as the colder months approach and vaccination hesitancy persists among some Americans. Johnson & Johnson said on Tuesday that its Covid vaccine booster shot is 94% effective. J&J shares added 0.5% on Tuesday.
— with reporting from CNBC’s Hannah Miao.