Stocks recovered only a fraction of their losses Tuesday morning after concerns the world’s most indebted property developer may start defaulting on its debt sparked the market’s biggest sell-off in months, but many experts remain confident stocks will rebound in the United States given strong economic momentum as the pandemic eases.
After plunging 615 points in its worst daily drop since July, the Dow Jones Industrial Average ticked up 118 points, or 0.4%, at the open Tuesday, keeping it nearly 5% below an all-time high from last month.
Boosted by gains in financials and energy, the S&P 500 and tech-heavy Nasdaq also ticked up about 0.4% apiece after posting their biggest declines since May on Monday, falling 1.7% and 2.2%, respectively.
In a Tuesday note, JPMorgan Chief Global Strategist Marko Kolanovic called Monday’s sell-off an “overreaction” fueled largely by rattled traders and doubled-down on his bullish market forecast, saying the S&P could still rise another 9% by year’s end.
He says the Russell 2000, an index of corporations with small market capitalizations, was relatively resilient on Monday and remains in a long-term uptrend, a good sign for the broader market given that small-cap stocks generally lead larger indexes, he adds.
Though several Asian markets remain closed this week until Wednesday, Hong Kong’s benchmark stock index ticked up 0.5% on Tuesday, though it remains down about 12% this year.
“As long as Covid continues to ease, strong momentum should continue into 2022 as businesses start to rebuild depleted inventories and ramp-up [spending],” Kolanovic said. “Central bank policies should remain growth-oriented, and even China’s slowdown is likely to be countered soon with a policy pivot.”
China’s second-largest property developer, Evergrande has amassed a staggering $300 billion in debt to help finance its sprawling portfolio of lofty projects since its founding 15 years ago. Battered by the nation’s slowed economic growth, however, the company told banks last week it would be unable to make debt payments due this month, sending its shares tumbling and sparking a sharp drop in the Chinese real estate sector that quickly spread across Asian markets. And though U.S. stocks were largely unfazed by the turmoil last week, they quickly sank Monday after reports emerged warning Evergrande could miss out on an $84 million interest payment due this Thursday—a default that would undeniably have damaging ripple effects given Evergrande’s sheer size. With some 1,300 real estate projects in China, Evergrande employs about 200,000 people and says it creates roughly 2 million jobs every year through its projects. Shares of the company have plunged more than 80% this year.
In a letter to employees Monday, Evergrande’s chairman said the company will “walk out of its darkest moment” and fulfill its obligations to investors, partners and banks.