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Dow sheds more than 600 points in wild trading on China and other economic worries

Potential default by property developer Evergrande would have ripple effects across the economy

An electronic board in Hong Kong shows the Hang Seng index on Sept. 20. (Kyle Lam/Bloomberg)
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U.S. markets tumbled Monday in wild trading as investors worried that one of China’s biggest property developers could default on hundreds of billions of debt, a scenario that would have ripple effects across the economy.

Investors also grappled with the threat of a government shutdown and uncertainty over the Federal Reserve’s monetary policy, which has helped to fortify the economy since the initial shocks of the pandemic.

The Dow Jones industrial average was down as much as 971 points in afternoon trading before cutting its losses. It closed at 33,970.47, off 614.41 points, or 1.8 percent.

The S&P 500 index, which notched back-to-back losses the past two weeks, shed 75.26 points, or 1.7 percent, to settle at 4,357.73. The tech-heavy Nasdaq pulled back even further, falling nearly 2.2 percent, or 330.06 points, to end at 14,713.90.

“While history has shown that over the past 40 years the stock market has experienced an intra year pullback often in excess of 5-10%, we have not seen any real consolidation of this magnitude since last October,” Wayne Wicker, chief investment officer at MissionSquare Retirement, said in an email to The Washington Post. “As a result, the market is anticipating a number of worries to result in a normal pullback in the coming months.”

Hong Kong’s Hang Seng index was pummeled, slumping 3.3 percent to its lowest close in about a year. Jitters carried over into Europe, where most major indexes, including the benchmark Stoxx 600, had fallen 1.7 percent. China-exposed companies were hit hard, with British mining company Anglo American falling more than 5 percent and German steelmaker ThyssenKrupp sinking 6.3 percent.

The Evergrande Group is the most debt-laden property developer in the world, with liabilities in excess of $300 billion, and this month it sounded the alarm that it could not keep up with its obligations to lenders, investors and suppliers. Construction on many of its projects has halted and, amid a wider debt crackdown in Beijing, concerns are mounting that the company’s failure could spark a broader crisis in the real estate market, a key engine of China’s economy.

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“It’s easy to look to the nearest headline like Evergrande and attach a cause and effect, but this market has experienced almost no downside volatility for a long time and a pullback was long overdue,” David Bahnsen, chief investment officer of the Bahnsen Group, said Monday in comments emailed to The Post. “Evergrande’s collapsing bond prices have been forecasting its challenges for some time.”

Some experts have compared the distress of Evergrande to the fall of Lehman Brothers in 2008, one of the largest casualties in the global financial crisis.

Concerns about China add to an already risk-studded September trading landscape. Fall is a notoriously tough time for stocks, and the rise of the delta variant of the coronavirus has cast a pall over the economic recovery. Tensions around the debt limit, infrastructure and Fed policy compound the uncertainty.

While virus-related hospitalizations fell about 9 percent over the past week, reported deaths climbed 22 percent and the number of new cases held steady, maintaining nearly 150,000 daily infections, matching levels from January. As cases increased in recent months, more employers have mandated vaccines for workers and President Biden has embraced broad vaccine requirements as a tool to curb the spread.

Expert advisers to the Food and Drug Administration voted unanimously to recommend that the agency authorize a booster shot of the Pfizer-BioNTech coronavirus vaccine six months after vaccination for people 65 and older and for anyone at risk of severe illness. On Monday, White House press secretary Jen Psaki said the president would get a booster shot in the coming weeks.

Congress returns amid looming fiscal showdowns that risk U.S. shutdown, default

Monday’s market declines also extended to digital assets: Bitcoin tumbled as much as 10 percent, below $43,000, according to CoinDesk. The cryptocurrency market overall was down more than 8 percent, with popular tokens such as ether and dogecoin also posting sharp declines.

Earlier this year, the crypto market surged to new highs, surpassing $2.5 trillion in market capitalization, drawing in new investors and highlighting the ways some financial institutions were adopting cryptocurrency and the technology that undergirds digital tokens. But in recent months, regulators across the globe have signaled plans for heightened scrutiny. And investors are looking ahead to the Fed’s meeting this week, which could provide additional details on when the central bank could start scaling back support for the markets.

Traders flocked to havens, sending gold up more than 0.7 percent to roughly $1,765 per troy ounce. The yield on the 10-year U.S. Treasury note sank .06 percent. Yields fall as bond prices rise.

Volatility reached oil markets, sending Brent crude, the international benchmark, down 1.2 percent to $74.46 a barrel. West Texas Intermediate, the U.S. oil benchmark, declined 1.6 percent to trade around $70.85 per barrel.

The Fed begins its two-day meeting Tuesday. Market observers will be looking for signs of monetary tightening after months of central bankers implementing policies to boost the economy during the pandemic.

The debate over monetary policy and the uncertain future of Biden’s economic agenda are also weighing on U.S. markets, said Jamie Cox, the managing partner for Harris Financial Group. Cox pointed to “stalemates in Congress on the debt ceiling, worries on policy changes or mistakes in monetary policy, and a litany of proposed tax increases” that have dampened the mood for investors.

Treasury Secretary Janet L. Yellen has called on Congress to raise the federal debt ceiling as Republican lawmakers refuse to help avert a financial crisis. Democrats and Republicans on Capitol Hill face many urgent fiscal challenges, including the potential for a shutdown, a legal limit on Washington’s ability to rack up debts, and disaster relief funding.