Stock futures are flat after S&P 500 worst day since May, Fed meeting ahead

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U.S. equity futures were roughly flat in overnight trading on Monday following a massive sell off on Wall Street that resulted in the S&P 500’s worst day since May.

Dow Jones futures fell 12 points. S&P 500 futures fell less than 0.1% and Nasdaq 100 futures were roughly flat.

Major averages fell on Monday amid a confluence of concerns including the impending Federal Reserve meeting, the lingering delta variant, potential economic turmoil in China and the end of the debt ceiling.

However, stocks closed well below their daily lows.

The S&P 500 slipped 1.7% on its worst day since May 12 of this year. At its daily low, the 500-stock average was down 5% intraday from its high. It is currently 4.1% off its record.

The Dow Jones Industrial Average fell 614 points, or 1.8%, for its steepest one-day decline since July 19. The Nasdaq Composite fell 2.2% as pockets of market growth were among the hardest hit.

The Federal Reserve kicks off its two-day policy meeting on Tuesday, and investors are seeking more information from President Jerome Powell on the central bank’s plans to reduce its bond purchases, especially when that happens. Powell said last month he saw the Fed slowing its $ 120 billion in monthly purchases at some point this year.

The Fed releases its quarterly economic forecast, known as the dot plot, along with the interest rate statement at 2 p.m. ET on Wednesday. Powell will have a press conference after.

We’ll have to see proof that the Fed’s dot plots aren’t coming out in a way that scares the market, ”said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.

The weakness in the Chinese stock market spilled over into US stocks on Monday. The benchmark Hang Seng has plunged 4% as struggling property developer China Evergrande Group is on the brink of default.

“We’re going to have to see evidence that the Chinese government is taking action to deal with this,” Ma added.

The Delta variant remains a threat to global health as the colder months approach, and vaccine reluctance persists among some Americans.

Global growth stocks led to losses on Monday and energy names were hit thanks to a 2% drop in US oil prices. Banks halt as bond yields fall.

The Cboe volatility index, Wall Street’s fear gauge, jumped above level 26 on Monday, the highest since May.

Investors are also worried about the deadline for raising the debt ceiling and possible tax hikes. Congress returned to Washington after the vacation rushing to pass fundraising bills to avoid a government shutdown.

September is a historically volatile month for stocks and after the S&P 500 has rebounded 16% since the start of the year, many investors have said the market is likely to experience a pullback. Some strategists called Monday’s sale a buying opportunity.

“The massive sell-off in the market that escalated overnight is mainly due to technical sales flows ([commodity trading advisors] and option hedges) in an environment of low liquidity and overreaction of discretionary traders to perceived risks, ”said Marko Kolanovic, chief global markets strategist at JPMorgan on Monday.

While others said volatility is likely to persist until some of the risks are resolved.

“We’re not in the camp that this little pullback represents a special buying opportunity,” Ma said. “There could easily be more volatility depending on what happens with the Fed meeting … similar to the debt ceiling. With the overhang and then the negotiations, it will certainly be pushed to the limit. “

Cryptocurrencies also fell on Monday, with bitcoin ending the day down around 7%. The slide resurfaced the debate over whether bitcoin can or should serve as a safe haven.

FedEx, Adobe, AutoZone and Stich Fix publish their quarterly results on Tuesday.

– with reporting from CNBC’s Hannah Miao.

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