U.S. stock futures dropped sharply Monday, suggesting that the major benchmark indexes may extend their retreat into a fourth consecutive week.
Futures tied to the S&P 500 fell 1.6%, signaling that the gauge’s losses may accelerate after the opening bell. The index ended last week more than 7% off its Sept. 2 high. Contracts for the Nasdaq Composite retreated 1.5%. The tech-heavy index closed on Friday at its lowest level since Aug. 11.
A closely watched barometer of expected turbulence in U.S. stocks, the Cboe Volatility Index, also jumped on Monday to its highest level in almost two weeks.
Some of the largest technology companies, which helped drive the market to record-highs over the summer, are now dragging it down. Sentiment has soured as investors assess an array of risks including delays to additional fiscal-stimulus packages, an increasingly heated U.S. election campaigning season, ongoing tensions with China, and the threat of renewed lockdowns in many places because of higher coronavirus infections.
The Global Times, a Communist Party-backed tabloid in China, said over the weekend that Beijing would press ahead with the creation of its “Unreliable Entity List,” aimed at identifying foreign entities and individuals that could harm Chinese interests. No names have thus far been disclosed. The development is likely to add another stress point to the already strained relations between the U.S. and China, as it signals that Beijing may step up retaliatory measures, investors said.
“There’s the broader macro risk that this might be China starting to become more combative in its use of sanctions,” said Edward Park, deputy chief investment officer at Brooks Macdonald. “That wasn’t really on the markets’ radar.”
Overseas, the pan-continental Stoxx Europe 600 fell 2.4%, led lower by sharp drops in the banking and travel and leisure sectors. The gauge is on track for its lowest closing level since the end of July. Coronavirus cases have been rising across major European economies, leading to speculation that governments will be forced to implement new lockdowns that will curtail business and social activity across the region.
“The worry is definitely that we’re going to see restrictions on economies and that’s going to have a big negative impact going forward,” said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe. “There’s the noise from politicians across Europe on the threat of further lockdown, that we’ve reached a tipping point on the rate of infections.”
Apprehension about additional new restrictions in London sent the FTSE 100 index down 3%
Shares in HSBC Holdings fell 5.3% by the close of trading in Hong Kong to hit a 25-year low after news articles detailed “suspicious activity reports” filed by it and other major banks to U.S. authorities, putting fresh pressure on a stock that has already dropped sharply this year. In London, the stock fell 4.5%.
In Asia, most major stock benchmarks fell by the close of trading. Hong Kong’s Hang Seng Index retreated 2.1%, while China’s Shanghai Composite ticked down 0.6%. Japan was closed for a holiday.
Brent crude, the international energy benchmark, dropped 1.7% to $42.42 a barrel. Analysts said the drop was triggered by signals that Libya could renew its supply of oil to the global market at a time when demand for oil has dropped.
In bond markets, the yield on the benchmark 10-year Treasury ticked down to 0.669%, from 0.694% Friday.