Dow sinks 400 points as Nasdaq tumbles 7% from record high on concerns about inflation and Washington’s debt feud

U.S. stock benchmarks trade under heavy pressure midday Monday, with the path for equity markets uncertain, as tense negotiations on the debt ceiling play out and the U.S. economy attempts to rebound from the COVID-19 pandemic and concerns about sticker-than-expected inflation grow.

What’s happening with stocks?
  • The Dow Jones Industrial Average

    fell 391 points, or 1.1%, to about 33,929.

  • The S&P 500

    fell by about 68 points, or 1.6%, to 4,290, as technology and communication services shares tumbled more than 2%.

  • The Nasdaq Composite Index

    declined 342 points, or 2.4%, to about 14,222, with the tech-heavy index off by more than 7% from its Sept. 7 record close.

Last week was a rough one for U.S. stocks, as the S&P 500 dropped 2.2%, though the three major indexes each advanced on Friday.

On Friday, the Dow rose 483 points, or 1.43%, to 34326, the S&P 500 increased 50 points, or 1.15%, to 4357, and the Nasdaq Composite gained 118 points, or 0.82%, to 14567.

What’s driving markets

A selloff was taking shape on Monday, with markets succumbing to pressure in technology an tech-related stocks. Notably, the S&P 500’s communication services sector

was off 2.8%, led by Facebook Inc., and the technology sector

was off 2.8%.

The market has been under increasing pressure, with developments centered on those in Washington, D.C., where negotiations on infrastructure spending and social spending have failed to achieve a resolution. According to The Wall Street Journal, Democrats were debating whether to reduce proposed programs or cut their duration to shave down the $3.5 trillion size of the social spending proposal.

In macro news, indebted Chinese property developer China Evergrande

said it may sell its property management arm. Traders have been concerned that Evergrade’s inability to pay debt will roil the Chinese economy, the second-largest in the world.

“Investors have grown increasingly uneasy as accelerating economic activity and monetary stimulus give way to slowing growth and steps toward policy normalization,” wrote Seema Shah, chief strategist at Principal Global Investors, in emailed comments on Monday.

“Market sentiment has been further disrupted by the impact of China’s restrictions on property-related lending and the related Evergrande headlines, while the recent spike in energy prices has exacerbated fears that elevated inflation may soon lead to demand destruction,” the strategist wrote.

Indeed, U.S. oil was headed to a seven-year high, and international benchmark Brent its highest since 2018, as the Organization of the Petroleum Exporting Countries and its allies kept its current agreement to gradually raise crude production each month, including a 400,000 barrels per day increase in November.

Meanwhile, U.S. Trade Rep. Katherine Tai is due to discuss the U.S.-China trade relationship, where the Biden administration so far has kept tariffs imposed by the Trump administration on China in place. The White House said it wouldn’t rule out further tariffs as it chided China for not meeting commitments under the Phase One pact.

Karyn Cavanaugh, chief investment officer at Carolinas Wealth Management, told MarketWatch that the market is responding to worries that “inflation may not be that transitory”

She doubts that the recent declines suggest that the markets were going to turn more substantially bearish and said that it is more likely that the market is “going to be a little bit of a grind” higher.

The CIO said guidance from chief executives could be a determinant in the market’s mood, however. “2022 could be a little bit more difficult, but for now I don’t think the wheels are coming of the bus,” she said of the current state of the market.

“I think that it is too early to ring the alarm bell,” she said. There is “a lot of liquidity in the market buying bonds and the consumers are in fantastic shape,” she said, referring to expectations that the Federal Reserve will start tapering of its monthly purchases of Treasurys and mortgage-related bonds before the end of the year.

Read: Powell’s shaky hold on his Fed chair rattles markets, but a Fed face-lift is unavoidable

On the public health side, the CEO of BioNTech told the Financial Times that COVID-19 is likely to continue mutating to the point where it can escape vaccines and immune systems and that a new vaccine may be required in the future. Meanwhile, Johnson & Johnson JNJ and Moderna MRNA have applied for authorization from the FDA for their COVID-19 vaccine boosters and an advisory committee will discuss them at a meeting scheduled for Oct. 14 and Oct. 15.

In economic reports, U.S. factory orders rose 1.2% in August, beating the 1.1% estimate of economists surveyed by The Wall Street Journal.

Meanwhile, Bloomberg News reported on the trading of Fed Vice Chairman Richard Clarida, saying he traded stocks on the eve of a statement made about the pandemic. While the central bank said a February 2020 trade was a preplanned rebalancing, it puts further pressure on Fed Chairman Jerome Powell ahead of a White House decision on whether to nominate him for another term.

Which companies are in focus?
  • Facebook practices are in the spotlight after comments from a whistleblower. A former employee appeared on CBS’ “60 Minutes” and accused the social-media company of putting profit before public good “over and over again.” The interview follows a series of reports by The Wall Street Journal called “The Facebook Files” suggesting, among other things, that executives were aware of the negative impact of its platforms on many users. Its stock was down 4.1%.

  • Shares of Redhill Biopharma Ltd. RDHL were in focus on Monday after the company said it had new data from a Phase 2/3 clinical study evaluating its experimental oral antiviral opaganib in severely ill, hospitalized COVID-19 patients. Its stock was up 7.2%.

  • AMC Entertainment Holdings Inc. AMC said the weekend set new post-opening records for global attendance, admission revenue and food and beverage sales, thanks to strong performances by “Venom: Let There Be Carnage” in the U.S. and James Bond’s ‘No Time to Die” internationally. Shares were down 4.8%.

  • IMAX Corp. IMAX shares were up 2.6% after it said it garnered $30 million in global box office receipts over the weekend to mark its strongest October weekend ever and its biggest weekend tally since December of 2019. 

  • Shares of Amplify Energy Corp. AMPY announced a large oil spill in Southern California over the weekend. Shares of the company were down more than 43%.

  • Cree Inc. has changed its name to Wolfspeed Inc. WOLF and the technology company begins trading Monday on the New York Stock Exchange under the ticker symbol “WOLF.” Its stock was up 1.2%.

  • Bed Bath & Beyond Inc. BBBY announced the launch of the Studio B home décor collection on Monday. Shares were off 2.2%.

  • FireEye Inc. FEYE shares were off more than 2% after the cybersecurity company said Monday it will officially change its name to Mandiant Inc. and trade under the new ticker symbol ‘MNDT’ from Tuesday. 

How are other assets trading?
  • The yield on the 10-year Treasury note TMUBMUSD10Y rose, but as stocks sold off its gains were moderating on Monday to around 1.48%, after last week putting in its sixth straight weekly rise, according to Dow Jones Market Data.

  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six three major rivals, fell 0.2% Monday.

  • Oil futures CL00 traded higher, with the U.S. benchmark rising 2.5% to reach $77.78 a barrel Monday after OPEC and its allies agreed to hold steady previously agreed upon increase in crude output starting in November. Gold futures traded up 0.5% at $1,767.10 an ounce.

  • In European markets, the Stoxx Europe 600 index SXXP traded 0.5% lower. The FTSE 100 Index

    traded 0.2% higher.

  • The Nikkei 225 index NIK closed down 1.1%. China markets were closed for a the Golden Week holidays. Hong Kong’s Hang Seng

    closed down 2.2%.

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