September 20, 2021
Good morning,
It appears this morning that we will not get through September unscathed. Investor angst over China’s real estate sector seems to be the final straw that breaks investor complacency with this market’s wall of worry; reduced Fed stimulus (tapering), the uncertainty over the outlook for the $4 trillion economic agenda as well as the need to raise or suspend the U.S. debt ceiling, a slowing global recovery and inflation stoked by commodity prices. Oh, and of course; covid.
The key this week will likely be whether the crash in sentiment starts to build on itself, with risk asset weakness begetting more selling, rather than dip-buying that has characterized trading all year. The S&P 500 was down -.57% last week, it is off over 3x that this morning at -1.70%. The VIX has jumped up 25% to over 26 this morning but recall that concern doesn’t really rise until the VIX reaches the mid-30’s. Treasury yields are down and back under 1.30% on the 10yr and I do think low yields are foundational to the current bull market. The S&P closed Friday right at its 50 day moving average – notable only because it is where dip-buying has begun in past market declines.
Remember, after more than a year without even a 5% market decline, emotions will likely be elevated this morning. It’s going to feel a lot worse that it is arithmetically. We’re in the storm now, let’s see what kind of damage is done to the tape, and breadth indicators in the days ahead. We will then act accordingly.
In the past, I’ve written each day during periods of elevated volatility. I’ll probably see you tomorrow, it will be okay.
Be well,
Mike