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Stocks and crypto rebound even as Evergrande default looms over global markets

September 21, 2021, 9:16 AM UTC

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Good morning.

The dip-buyers are back, pushing up European shares and U.S. futures. The dollar is soft. Crypto is off its lows. But it’s not all blooming flowers and song birds.

Evergrande is on the brink of collapse. That’s rough news for investors, but it should be interesting to see which, if any, companies are on China’s too-big-to-fail short list. We may find out in the coming days. Stay tuned.

Let’s check out what else is moving the markets.

Markets update

Asia

  • The markets in mainland China and South Korea are closed again today, no doubt making investors there even more tense. The Nikkei reopened, however, and Japanese stocks were down nearly 2.2% in afternoon trading.
  • The selloff in China Evergrande continues this morning in Hong Kong. The stock was down 0.4%—off far steeper lows—after S&P Global Ratings warned the Chinese government is likely to let the battered property developer simply default. The good news: it won’t “be China’s Lehman moment,” says Barclays.

Europe

  • The European bourses are bouncing back on Tuesday, with the Stoxx Europe 600 up 1% an hour into the trading day. Bank, basic resources and auto stocks, Monday’s biggest losers, led the way at Tuesday’s open.
  • European airlines stocks soared yesterday, with Lufthansa surging nearly 9%, as the United States will finally lift the travel ban on overseas travelers—but only if you’re vaccinated.
  • Investors are going gaga over Universal Music. The major music label, home to Lady Gaga and Taylor Swift, shot up 35% in its market debut on Tuesday.

U.S.

  • U.S. futures are higher. That’s after the S&P 500 suffered on Monday its worst selloff in four months. It notched its fifth-worst session of the year, according to Deutsche Bank. It could have been worse; a late-day rally nearly halved those losses.
  • Big cap tech stocks were among the biggest losers yesterday. The FANG+ Index slumped 3.16%.
  • The Fed—remember them?—begins its two-day conference today. Don’t expect any fireworks—or, more likely, a couple of wet sparklers—until tomorrow. The consensus seems to be for a tapering announcement at the November FOMC meeting, with Deutsche Bank forecasting three rate hikes in 2023 and another three in 2024. Savers, can you wait that long?

Elsewhere

  • Gold is flat. It trades around $1,760/ounce. These are the weeks when investors typically head for safe havens, but we haven’t seen any kind of rush to gold.
  • The dollar is down.
  • Brent is gaining, trading above $74/barrel.
  • Crypto had a wild ride yesterday. Bitcoin and Ethereum’s Ether were among the worst performing asset outside of Chinese real estate stocks on Monday, with BTC testing the $40,000 floor at one point. It’s since rebounded to trade around $43,000.

***

Evergrande, valuations, the Fed: The pros weigh in

When the equities markets go haywire, as they did yesterday, my in-box fills up pretty fast with all kinds of commentary, analysis and observations from Wall Street pros. Here are a few worth sharing today as we enter one of the most tumultuous stretches of the year:

Evergrande…nothing to see here

Markets are clearly having some angst on the potential spillover effects from Evergrande, along with some nervousness over the September FOMC meeting. We’ve been in the camp that we’re overdue for a correction, something in the 5-10% range that is a buyable pullback and we seem to be getting that now. At the moment, we’re not worried about a market crash. The Fed and Evergrande are not new. The market has known about both of these for a couple weeks in the case of Evergrande and a couple of months now for the Fed.—Cliff Hodge, Chief Investment Officer for Cornerstone Wealth.

A selloff is long overdue

We’ve been arguing that the US economy is in good shape and—the recent covid-surge notwithstanding—continuing to improve; however, markets were likely to experience at least a 5% pullback (potentially more) at some point this year and that it was worth keeping focused on the bigger picture. There will be many who will try to time the market, but it is exceedingly difficult to do it consistently and without losing more (e.g. in opportunity cost) than can be gained by avoiding the occasional air pocket in an otherwise spectacular bull market that won’t be interrupted until the next recession is imminent.—Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance.

A September to forget

Markets have been priced to perfection for a long time, and in this September lull … markets are dealing with the thing they hate most—uncertainty. There is uncertainty around geopolitics, public health policy, tax and spending legislation and that uncertainty is more impactful when stocks are trading at 25x earnings than 20x earnings.—David Bahnsen, chief investment officer, The Bahnsen Group

Time to buy the dip?

While the stock market is living up to its seasonal September weakness, now is still not a good time to buy the dip in stocks in the broader indexes. Buying the dip has been a good, even great strategy for the past decade, but sooner or later it won’t be.—George Ball, chairman of Sanders Morris Harris.

Consumer strength + inflation = blue skies ahead?

Even with those anxieties, the U.S. economy showed signs of improvement last week. Retail sales unexpectedly rose as shoppers bought furniture, clothing and general merchandise. The number probably would have been even higher if semiconductor shortages hadn’t slowed auto sales. Industrial reports from the New York and Philadelphia Feds also suggested bottlenecks may be easing which could be good news for people worried that shortages would cause rampant inflation.—David Russell, VP of Market Intelligence at TradeStation Group.

***

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

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Quote of the day

Parabolas don't resolve sideways.

No, that's not my high school geometry teacher. That's Michael Burry, the legendary bear who famously shorted the U.S. housing market more than a decade ago and was later immortalized in the film, The Big Short. Burry returned, after a several-month hiatus, to Twitter this weekend to take on passive investing, big-cap tech stocks and out-of-whack valuations. Fortune's Declan Harty has the story.

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