Was the Evergrande crisis a moment?
Stocks around the world are in RALLY mode after investors factor in panic over an Evergrande default.
Today begins the meeting of the FOMC…. with all kinds of speculation – Will the Fed stay in an accommodating position?
Try the Italian wedding soup.
Global stocks cracked Monday … US stocks cracked Monday … the Dow Jones lost over 900 pts at one point in the day – before closing at 614 pts in a dramatic rally late in the day . S&P lost 75 pts, Nasdaq lost 330 pts, Russell lost 55 pts and Transports lost 171 pts.
It was an interesting day…. a lot of chatter in the street on the sequel? How could this happen? Do I have to guarantee? Should I buy more? All the questions that haunt you when the market goes into what looked like a free fall… Everyone’s trying to explain it – as so many people have been screaming about a pullback for months now…. I included…. that’s why – when it happens, it’s always so interesting…. Because what really happened? Nothing has changed in terms of macro data or FED plan or ongoing conversation at DC…. There has been no announcement of an interest rate cut or an interest rate hike, but there is speculation but not enough to cause a sell off as we have seen – du less not yet….
There was news from China – the country’s biggest real estate developer on the verge of bankruptcy … and what that would mean for the Chinese economy and banking system, then by default what it might mean for the global economy and world banking system. The news that some of America’s biggest banks were exposed only added to the angst among investors in that country.
Asian markets (those that were open) came under pressure, European markets then followed suit – dropping more than 2% at the start of the session but ending the day well below their lows….
And US stocks took a hell of a beating for most of the day…. opening lower, then lowering further as morning turned into afternoon… then rumors of a white knight appearing in China sent patient American buyers scrambling… sparking a rally around 3pm – passing the markets from the depths of despair to ‘just another day’ in a classic buy the rally dip. At worst – the S&P has seen a move take it down a little better than 5% of highs – a move we haven’t seen in quite a while and almost the move I called it – for months now … I wanted to see a 7% move – 10% off the top – but for now, I’ll take the 5% move!
Well, I hope none of this will come as a surprise to any of you… if you’ve been listening – this correction was a little late – whatever started the movement….… And by the way… It’s always like that. t even a fix yet…. We were only 5% off the S&P early September highs – so it’s well within the normal trading range…. a correction would mean the average is down 10% from the high – which doesn’t mean some of your stocks aren’t in correction mode – they sure could be, but generally speaking the market always trades in a ‘normal’ range ‘.
(If there is still something normal?).
As the day wore on stocks weakened against stronger… and that’s not necessarily a good sign…. stocks that close on lows usually prepare for another hunt the next day. (That’s not what happened – stocks have rebounded from lows and this morning US futures are higher).
Now look – it wasn’t just one thing that caused this – it was a negative day – led by Evergrande news which then brought up all the other news that could be seen as negative … think FED , at the ECB, at the BoE etc…., think about fiscal and spending policies and think about the global data points slowing down and think about the looming debt ceiling debate – (No one even mentions the delta variant) … ..Put everything in and you want to know why the markets had a crisis?
And while you say the Evergrande thing doesn’t mean anything to us – think again… First, it sets a negative tone on Asia, then when you start to consider the exposure of so many European banks and American in Evergrande – then you can reconsider your position… So, for example, Goldman Sachs lost 5% of its value yesterday at 3 pm ……. taking 125 pts on the Dow, which brings this stock down a little over 11% from its late August highs… So if you own GS – then yes… this stock is in ‘correction mode’. It has now crossed its short and medium term trend lines… and seems to want to test the long term trend line…. And why? Because it was revealed yesterday that GS – along with a handful of other US investment banks have “exposure” to Evergrande – exactly what it is – is still unknown to the public at the moment … but if you’re GS or JPM or MS or C – you know what your exposure is… and you’re working really hard to mitigate the fallout and they most likely noted that risk given that this issue has been brewing for months now… just a snap. eye at chart reveals construction weakness – Evergrande has lost 87% of its value since January 2021… ..….… .. Now the good news is – with markets and futures higher this morning – s ‘expect to see GS and the other banks recover nicely.
Now, many big names on the streets have come out in force to calm the markets… ..assuring investors that this is NOT a Lehman moment at all (something I also said yesterday)… ..the message sent to world markets is simple… ..Yes, Evergrande may fail, but it won’t be the disaster the markets suggested …… because in their opinion – the Chinese government will step in to prevent this latest crisis from destabilizing their economy. And stocks around the world are in rally mode this morning.
The 10 years. the yield on treasury bills ended the day at 1.30% and this morning the yield is 1.33% as calm has returned. Gold rose $ 12 and rose another $ 4 today…. Oil fell 2% to end the day at $ 70.40 but is up 1.5% this morning to $ 71.31 / barrel.
Yesterday’s moves saw Energy – XLE lose 4.2%, by far the biggest losing sector, Financials XLF, Consumer Discretionary – XLY, Basic Materials – XLB all losing more than 2%, while Industrials – XLI, Tech – XLK, Consumer Staples – XLP and Healthcare XLV – sold around 1.5%. Growth trading – SPYG lost 2.5% while SPYV value trading – lost 2%. Today, all these sectors will now offer an opportunity for new investments.
Dow futures are up… .321 pts, S&P are up 36 pts, the Nasdaq is ahead 120 pts and the Russell is up 28 pts. And while yesterday’s action was uncomfortable – the fact is it was and is long overdue and should NOT be a surprise at all… in fact – a strong correction is healthy for the whole market… and this decline is partly seasonal, partly linked to the FED and now partly linked to Evergrande….
Eco data today includes housing starts – exp of + 1% and building permits of -1.8%.
Today begins the September FOMC (Federal Open Market Committee) meeting, so we expect the press conference tomorrow at 2 p.m. I guess the Fed will use the recent “weak” economic data (which I think is silly) as well as this latest Chinese issue to engage in discussing the start of an American tapering, but will not offer any clarification. final on the date. While we all thought it was a November / December event – it now appears to be a January / February event and it’s not even defined yet either…. but it gives them more time to consider upcoming macro data points.
European equities are all up in all areas…. paying no attention to the debacle in China or the FED meeting. Basic resources and energy stocks lead the pack higher… whereas they led the pack lower yesterday. There is no green data, so investors are busy shopping. The BoE (Bank of England) is expected to announce a rate decision on Thursday… no change is expected.
Bitcoin and Ethereum which were under pressure yesterday like everything else do not rally at this stage…. Bitcoin is trading at $ 43,000 and Ethereum at $ 3,050.
The S&P ended the day at 4357 – after testing as low as 4305 – broken down and both it’s 50 DM, then its 100 DM…. before the rally that brought it back above that intermediate trendline. This morning’s rally seems to indicate that the S&P will open 4380 ish…. What will be interesting is what happens at 4436 – the short term moving average. Will this serve as resistance, or will buyers pick it up and pass that level on the way back to annual highs? We are still in a seasonally weak period… and with the Fed’s announcement tomorrow looming, markets could remain tight. Anyway, I have the impression that the market is not expecting anything definitive any more, which means that the FED will remain accommodating and that will support the markets.
Italian wedding soup
It’s a great soup to prepare for any occasion, but it works great when you’re feeling a little anxious…. This soup is full of vegetables and tiny veal dumplings and is a family favorite.
For the meatballs: 1 lb ground veal, fresh breadcrumbs, minced garlic (2 cloves), chopped fresh parsley leaves, freshly grated Pecorino Romano, freshly grated Parmesan, milk, 1 extra large egg lightly beaten, s & p.
For the soup: You should start by making a chicken soup, making sure you have plenty of carrots, celery, and onions. You also need: 1 cup tubetini (small pasta) of fresh baby spinach, washed and trimmed.
Preheat the oven to 350 degrees.
For the meatballs, place the ground veal, breadcrumbs, garlic, parsley, pecorino, parmesan, milk, egg, s & p in a bowl and mix. Using a teaspoon, place 1-1 / 4-inch meatballs on a baking sheet lined with parchment paper. (You should have about 40 meatballs. They don’t need to be perfectly round.) Bake for 30 minutes, until cooked through and lightly browned. Put aside.
Once the soup is cooked – Add the pasta to the simmering broth and cook, 6 to 8 minutes, until the pasta is aldente.
Then add the meatballs to the soup and simmer for 1 minute. Taste for s & p. Stir in the fresh spinach and cook for 1 minute, until the spinach is just slightly wilted. Pour into soup bowls and sprinkle each serving with additional grated Parmesan. A nice piece of garlic bread at the bottom of the bowl is always a favorite.