The Dow suffered another grisly setback on Monday as Chinese officials rebuked anti-government protests in Hong Kong as reminiscent of “terrorism” – thrusting the global economy one step closer to what one legendary investor has predicted could be the stock market’s next “black swan” event.
All of Wall Street’s major indices dropped during the morning session. As of 9:32 am ET, the Dow Jones Industrial Average had lost 211.06 points or 0.8%, pushing the DJIA down to 26,076.38.
The S&P 500 performed somewhat better, losing 18.76 points or 0.64% to settle at 2,899.89.
The Nasdaq shed 50.6 points or 0.64% to decline to 7,908.54.
Stocks tumbled after the Hong Kong protests potentially reached an inflection point.
The increasingly-violent anti-government demonstrations paralyzed Hong Kong International Airport on Monday, forcing local authorities to ground all flights until Tuesday at 6 am local time.
Beijing rebuked the “rioters” in an official statement. According to the South China Morning Post, Yang Guang, a spokesman for the Hong Kong and Macau Affairs Office (HKMAO) under the State Council, said that the protests had begun to exhibit “signs of terrorism.” Yang said that Hong Kong faced a “critical moment” and must address the violence with an “iron fist” – and “no mercy.”
“In recent days, Hong Kong’s radical protesters have repeatedly attacked police with highly dangerous tools, which constitute serious violent crimes and have started to show signs of terrorism,” Yang said. “This type of violent criminal activity must be resolutely combated according to the law, with no hesitation or mercy.”
Last week, investor Steve Eisman – the inspiration for the “Big Short” – revealed that he fears the Hong Kong protests could spiral into an economic black swan event that mutilates the global stock market.
“I think the potential black swan, if there is a black swan right now, is what’s happening in Hong Kong right now,” said Eisman on CNBC’s Power Lunch. “If things escalate even further in Hong Kong, that would have a real impact back on the global economy.”
Eisman, like other analysts, warns that the Hong Kong protests could set off a series of market-toppling dominoes. The rapidly-escalating unrest could force the White House into an uncomfortable position and threatens to further strain the already-fraught US-China trade war negotiations.
To date, President Trump has been noticeably quiet about the situation in Hong Kong. While he has been eager to criticize Beijing for allegedly manipulating its currency or failing to fulfill its trade-related promises, he has not provided the protesters with rhetorical support – or even warned Beijing against the sort of violent crackdown hinted at this morning.
However, ongoing escalations could eventually force Trump’s hand.