"Credit Cockroach" Attacks Wall Street, Nasdaq Experiences Largest Monthly Drop in a Year

South Financial News, 21st Century Business Herald Reporter Wu Bin Reports

Multiple shocks cause U.S. stocks to decline again. On February 27, Eastern Time, the S&P 500 closed down 0.43% at 6,878.88; the Nasdaq Composite fell 0.92% to 22,668.21; the Dow Jones Industrial Average dropped 1.05% to 48,977.92.

Overall performance in February shows that U.S. stocks performed worse. The Nasdaq declined 3.38% cumulatively, and the S&P 500 fell 0.87%, both marking the largest monthly drops since March 2025; the Dow slightly rose 0.17%, barely achieving ten consecutive months of gains.

It is worth noting that despite strong earnings reports, Nvidia fell 5.45% on the 26th and dropped another 4.16% on the 27th, erasing $187.1 billion in market value, equivalent to over 1 trillion RMB.

In fact, the negative factors facing U.S. stocks are not limited to the sharp decline of AI leaders. A series of clouds are overshadowing the market, suppressing risk appetite.

U.S. Stocks Face Multiple Risks

U.S. economic data also sent bad news. The Producer Price Index (PPI) for January rose more than expected, indicating that companies may be passing higher import tariffs costs downstream, potentially increasing inflationary pressures in the coming months.

Specifically, the U.S. January PPI increased 2.9% year-over-year, well above the expected 2.6%; month-over-month, it rose 0.5%, also higher than the expected 0.3%. Excluding volatile food and energy prices, the core PPI for January rose 3.6% YoY, significantly above the expected 3%; MoM, it increased 0.8%, also surpassing the forecast of 0.3%.

The impact of AI is also affecting the U.S. labor market. Jack Dorsey, former CEO of Twitter, said on the 26th that AI has fundamentally changed the meaning of building and running a company, and his tech company Block is currently cutting nearly half of its staff. “I don’t think we recognized this early enough; most companies reacted slowly. Over the next year, I believe most will reach the same conclusion and implement similar structural adjustments. Instead of passively responding to forced transformation, I prefer to take proactive steps and move at our own pace.”

As market risks have recently increased, Andrew Garthwaite, head of global equity strategy at UBS, downgraded U.S. stocks in the global equity portfolio to “benchmark.” He believes that the factors driving U.S. stocks to outperform the global market for many years are gradually fading. The core concern is dollar risk. According to UBS forecasts, the euro against the dollar will rise to 1.22 by the end of the first quarter, and the dollar faces “structural, asymmetric downside risks.”

Historical data shows that when the dollar trade-weighted index falls 10%, U.S. stocks tend to underperform global stocks by about 4% if unhedged. This year, with the dollar weakening and foreign markets being cheaper in valuation, funds are flowing out of the U.S., and non-U.S. markets are significantly outperforming.

Overvaluation is also a concern. UBS estimates that the adjusted P/E ratio of U.S. stocks is 35% higher than that of international peers, whereas the average premium since 2010 has been only about 4%. About 60% of industries are not only valued higher than global benchmarks but also above their own historical premium levels.

The “Cockroach” of Credit Markets Reappears

Caution is needed as, after last year’s bankruptcy of what was called the credit “cockroach,” First Brands and Tricolor Holdings, more companies have defaulted this year.

Supported by Wall Street, UK mortgage lender Market Financial Solutions (MFS) collapsed suddenly, shaking confidence in the private credit industry. Institutions under Apollo Global Management, Jefferies, and TPG are creditors of MFS.

Similar to the U.S. auto loan company Tricolor Holdings, MFS is a non-bank financial company seeking to fill financing gaps ignored or avoided by large banks, relying on Wall Street’s large institutions for funding. Like auto parts supplier First Brands Group, banks felt secure due to tangible collateral, but ultimately MFS was accused of repeated pledging, undermining that confidence.

Affected by the “cockroach,” the KBW Bank Index in the U.S. fell 4.85% on the 27th, the largest single-day decline since the tariff shock in April last year. Goldman Sachs dropped over 7%, Jefferies fell more than 9%, and Apollo Global Management declined over 8%.

Matt Maley, chief market strategist at Miller Tabak+, said that the negative credit market news from MFS has already begun to trouble companies like Apollo and Jefferies, and investors are starting to worry about a “contagion effect.” Even if it doesn’t evolve into systemic contagion, the ongoing problems in the credit market still pose risks of losses for financial firms.

Despite economic and geopolitical concerns, overall corporate default rates remain relatively stable, but recent fears of “cockroaches” have unsettled the credit market. JPMorgan Chase CEO Jamie Dimon introduced the “cockroach” concept last year and warned this week that current market conditions are beginning to resemble those before the 2008 financial crisis.