September 23, 2021
Good morning,
I’m sure you’re growing a little tired of Morning Notes four days in a row. But it’s only because Monday was the worst day since May, both in terms of the drop in the S&P 500 and the rise in the VIX (Volatility Index) – a combination that tends to elevate emotions. Evergrande was the primary catalyst, but a basket of concerns was also cited: the upcoming Fed taper, stalled stimulus talks, economic slowdown, inflation, seasonality and covid.
Looking back in retrospect it appears that a correction began on Monday and we’re checking in daily now to assess its damage and try to gauge its duration. The S&P 500 Index was up 0.95% on the day yesterday but the fact that most of those gains came well before the Fed announcement was, I believe, a tell to suggest this correction is close to its end, if not past it.
The focus of the day is squarely on Evergrande and its $83.5 million coupon due today. The overnight headlines on Evergrande seem a little confusing, with Chinese authorities apparently telling the company to make its dollar coupon payment on the one hand, and yet also prepping local governments for the company to go bust on the other.
Overnight equities continued to rally in the post Fed glow but are off their overnight highs after the Chinese local government warning story broke. It’s late in the day on the Pacific Rim and no payments have been reported. Yet, equities don’t seem to care as much now as they did Monday – the pre-market look has futures up 60 – 70 bps 30 min before the cash market open. The VIX is below 20 this morning.
With the correction seemingly over, I’ll spare you all the micro talk tomorrow and go back to looking longer term – I hope. See you tomorrow.
Be well,
Mike