U.S. stock futures were about flat in overnight trading on Monday following a major sell-off on Wall Street that resulted in the S&P 500’s worst day since May.
Dow Jones futures lost 12 points. S&P 500 futures shed less than 0.1% and Nasdaq 100 futures were about flat.
The major averages tumbled on Monday due to a confluence of concerns including the imminent Federal Reserve meeting, the lingering delta variant, potential economic disruption in China and the debt ceiling deadline.
However, stocks closed well off their lows of the day.
The S&P 500 slid 1.7% for its worst day since May 12 of this year. At it’s low of the day, the 500-stock average pulled back 5% on an intraday basis from its high. It currently sits 4.1% from its record.
The Dow Jones Industrial Average plummeted 614 points, or 1.8%, for its biggest one-day drop since July 19. The Nasdaq Composite dropped 2.2% as growth pockets of the market were some of the hardest hit.
The Federal Reserve begins its two-day policy meeting on Tuesday and investors are looking for more information from Chairman Jerome Powell about the central bank’s plans to taper its bond buying, specifically when that will happen. Powell said last month that he sees the Fed slowing its $120 billion in monthly purchases at some point this year.
The Fed releases its quarterly economic forecasts, the so-called dot plot, along with the statement on interest rates at 2 p.m. ET Wednesday. Powell will have a a press conference after.
“We’re going to have to see proof that the Fed dot plots don’t come out in a way that spooks the market,” said said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.
Weakness in China’s equity market reverberated into U.S. stocks on Monday. The benchmark Hang Seng index plunged 4% with as struggling real estate developer China Evergrande Group teeters on the brink of default.
“We’re going to have to see some proof that the Chinese government is taking steps to manage this,” added Ma.
The Delta variant remains a global health threat as the colder months approach and vaccination hesitancy persists among some Americans.
Stocks linked to global growth led losses on Monday and energy names took a hit thanks to a 2% drop in U.S. oil prices. Banks stops dropped as bond yields fell.
The Cboe Volatility index, Wall Street’s fear gauge, jumped above the 26 level on Monday, the highest since May.
Investors are also concerned about the deadline to raise the debt ceiling and possible tax increases. Congress returned to Washington from recess rushing to pass funding bills to avoid a government shutdown.
September is a historically volatile month for stocks and after the S&P 500’s 16% rally year-to-date, many investors have said the market is due for a pullback. Some strategists called Monday’s sell-off a buying opportunity.
“The market sell-off that escalated overnight we believe is primarily driven by technical selling flows ([commodity trading advisors] and option hedgers) in an environment of poor liquidity, and overreaction of discretionary traders to perceived risks,” Marko Kolanovic, JPMorgan chief global market strategist, said in a note Monday.
While others said volatility is likely to persist until some of the risks are resolved.
“We’re not in the camp that this small pullback represents a special buying opportunity,” said Ma. “There could easily be more volatility depending on what happens with the Fed meeting…similar with the debt ceiling. With the overhang and then negotiations, this is definitely going to be pushed to the wire.”
Cryptocurrencies also pulled back on Monday with bitcoin ending the day about 7% lower. The slide resurfaced the debate about whether bitcoin can or should serve as a safe-haven asset.
FedEx, Adobe, AutoZone and Stich Fix report quarterly earnings on Tuesday.
— with reporting from CNBC’s Hannah Miao.