US stocks tumble 📉

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My #MondayThought is about how the word "contagion" is both a buzzy financial metaphor and a viral reality right now. Let's get into it.

by Allison Morrow

🦠 CONTAGION FEARS

Remember last week, when we talked about how US investors were all hakuna matata-ing in the face of a massive liability called Evergrande? ICYMI: That's the Chinese real estate behemoth that's flirting with defaulting on some $300 billion in debt.

Wall Street's no-worries vibe was informed at least partly by the thinking that even though Evergrande looks like China's "Lehman Brothers moment," officials in Beijing are going to do what authoritarian governments do: either bail Evergrande out or carefully manage its demise to prevent a painful fallout.

But that was last week.

By Monday, investors were in panic mode. Stocks spent the whole day deep in the red, and the Dow fell more than 970 points at its low point. The Dow finished down 1.8%, or 614 points. The S&P 500, the broadest measure of Wall Street, closed down 1.7%, while the Nasdaq fell 2.2%. My colleague Anneken Tappe has more on the selloff.

What's going on in China?

Evergrande is the country's biggest property developer, and it's built a mountain of debt to keep its business going over the past two decades. But cash flow has dried up. China's long-overheated housing market is cooling off, so there's less demand for homes. Evergrande is so short on cash it's offering to pay suppliers and contractors in apartments rather than actual money, according to the Wall Street Journal.

Investors seem to be betting Beijing could let the company fail. That would fall in line with the communist leadership's crackdown on private industry, particularly the debt-fueled speculation that's run rampant in the housing market.

Why are US investors so worried about it?

Everything is connected in the world of financial markets. Evergrande may have the biggest interest bill, but it's by no means the only Chinese firm to have gobbled up a boatload of debt from foreign investors.

In short, even a controlled implosion of Evergrande could cause investors to panic. Foreign creditors would be scared off, making it difficult for Chinese companies to finance their businesses.

Um, should we be worried?

Yes and no. Evergrande's failure would likely not be as devastating as the Lehman Brothers bankruptcy at the peak of the subprime mortgage crisis. That's partly because Evergrande, unlike Lehman, has physical assets that could be sold to help settle its debts, says Ryan Detrick, chief market strategist for LPL Financial.

"We think the odds do favor the Chinese communist government will get involved should there be a default," Detrick said. "They are holding out as of now, but the fallout could be too great for them to avoid intervening."

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#️⃣ NUMBER OF THE DAY

89%

The Delta variant is keeping the US economy from getting back to its pre-pandemic strength. The Back-to-Normal Index, created by CNN Business and Moody's Analytics, dropped to its lowest level since early June. After hovering in the low-90% area for months, America's economy dropped back to 89% of its pre-Covid fighting weight as of September 17.

🎄 HOLIDAY BUMMER

There's a new addition to the list of Things We Can't Afford Anymore Thanks to the Supply Chain Mess: artificial Christmas trees.

"We'll have to raise prices. For trees, it'll be on average about 20% higher," said Mac Harman, CEO of Balsam Hill, which does more than $200 million a year in direct-to-consumer sales of artificial trees and other decorations.

"Even then it won't cover our own costs because we're paying as much as 300% more per shipping container this year."

Given that this'll be Pandemic Christmas Part Deux, people are ready to throw down on some festive crap. Expect big trees, extra tinsel, bright lights. (If your house doesn't nearly blind your neighbors, are you even celebrating?)

But it won't come cheap. Months and months of shipping disruptions triggered by the pandemic have left us waiting longer and paying more for just about everything. And your options may be limited.

Balsam Hill's tree inventory is running about 22% below last year's level and overall inventory of holiday seasonal decor is down 42% year-over-year, my colleague Parija Kavilanz writes.

"What we're most concerned about are decorations like ornaments, tree skirts and wreaths," he said. "We source these products worldwide. Even if one or two containers with those items get delayed, we may not have a whole category of items."

WHAT ELSE IS GOING ON?

🍻 Samuel Adams' limited-edition Utopias beer is so potent it's actually illegal in 15 states. New York isn't among them, so if anyone's looking for an early Christmas gift for me, read on.

✈️ Boeing is investigating how two small, empty tequila bottles ended up on a plane that's set to serve as the next Air Force One. (Don't look at me y'all.)

🥩 UK supermarkets could face shortages of meat and other fresh food within weeks after soaring gas prices prompted a major US fertilizer manufacturer to suspend production.

🚗 From CNN Business' Risk Takers series: He built Didi into a world-class ride-hailing app and elbowed Uber out of China. But then he incurred Beijing's wrath by going public in the US. Now Cheng Wei faces a balancing act: placating both regulators at home and investors abroad.