Hi Everyone,
t’s no surprise that all of the main sectors closed the day in the red, with tech stocks, materials, energy-related issues, and financials all losing more than 2% and putting pressure on the broader market. The defensive utilities and the real estate sector were the strongest in the face of the selling pressure, but consumer staples, healthcare stocks, and industrials also held up well. On the bright side, the most virus-sensitive issues showed strength throughout the day thanks to the proposed easing of overseas travel restrictions to the U.S.
Traders said that even though today’s “mini-crash” caused significant technical damage, the final hour of trading might have been the start of a reversal. As one trader explained, “The major indices gained nearly 1% in less than an hour this afternoon, which could mean that today’s intraday low marked a tradable bottom in stocks.”
Some analysts fear that the collapse of Evergrande could trigger a domino effect in the overheated Chinese property space, which could put pressure on the country’s financial system and create instability throughout Asia. With mainland Chinese markets closed for trading today, there was little hope that the Chinese government or the Chinese Central Bank would step in and stop the bleeding with a widely expected bailout. That said, today’s wild moves could already trigger a response, especially as the rout spread to nearly all sectors. Thus, we could be in for a relief rally in risk assets overnight.
Today’s plunge came just one day before the start of the Fed’s scheduled monetary meeting, and while, in theory, the Central Bank should not react to selloffs in the stock market, it now seems less likely that we will get a taper announcement on Wednesday. Treasury yields plunged across the curve today, but compared to the large-scale moves in stocks, bonds were much less volatile, which suggests that domestic bonds are likely safe from contagion. Despite that, yields would likely continue lower following a dovish Fed surprise, as a lot of investors placed “tightening” bets in recent weeks.
Following today’s better-than-expected NAHB Housing Market Index, the sector will remain the center of attention tomorrow morning. While housing starts are forecast to tick higher, building permits likely edged lower compared to last month’s surprisingly strong reading. However, the forward-looking measure is expected to remain well below the levels seen at the beginning of the year. Activity in the housing market has stabilized in the last couple of months. We got several bullish indicators in the past few weeks, so another positive surprise may be in the cards tomorrow. Stay tuned!
“Life is like a piano…what you get out of it depends on how you play it.”
Tom Lehrer
As always, have a great evening and stay tuned!!
