US stocks had their biggest drop since May as traders worried about potential ripple effects if a debt-laden Chinese real estate company defaults. The S&P 500 fell 1.7% Monday. It had been down as much as 2.9% earlier. Hong Kong’s main index dropped 3.3%, its biggest loss since July, over worries that the huge Chinese developer Evergrande could collapse. The yield on the 10-year Treasury note dropped to 1.31% as investors turned to lower-risk assets. The S&P 500 fell 75.26 points to 4,357.73. The Dow Jones Industrial Average fell 614.41 points, or 1.8%, to 33,970.47. The Nasdaq fell 330.06 points, or 2.2%, to 14,713.90. The Russell 2000 index of smaller companies fell 54.67 points, or 2.4%, to 2,182.20.
The worries over Chinese property developers and debt have recently centered on Evergrande, one of China’s biggest real estate developers, which looks like it may be unable to repay its debts. The fear is that a potential collapse there could send a chain reaction through the Chinese property-development industry and spill over into the broader financial system, similar to how the failure of Lehman Brothers inflamed the 2008 financial crisis and Great Recession. Those property companies have been big drivers of the Chinese economy, which is the world’s second-largest.
Investors are also concerned that the US Federal Reserve could signal this week that it's planning to pull back some of the support measures it's been giving markets and the economy, the AP reports. "What's happened here is that the list of risks has finally become to big to ignore," says Michael Arone, chief investment strategist at State Street Global Advisors. “There’s just a lot of uncertainty at a seasonally challenging time for markets.” (Read more stock market stories.)