We’ve got a lot of info for you this week, thanks for your attention.
On Monday the market experienced its most significant down day since July. Combined with the last 1.5 weeks of mild selling, many folks would be surprised to know that the market was only down 3-5% depending on the index you look at. An investor with a diverse portfolio may have be down even less, that’s the point of diversification. The S&P did break to the downside through the 50 Day Moving Average we’ve been recently referencing, and we await confirmation over the next few days to see if the downside breakout has legs. Wednesday and Thursday’s sharp upswing leads us to believe the selling may already be leaving us as buyers arrived to bid stock prices back up and take advantage of the lower prices. Nothing to be overly worried about, as the next level of support on the S&P 500 is around 4250 (currently at 4400). All normal behaviors for the market.
Michael Gibbs noted an interesting couple of datapoints this week:
1. He mentions that there were 5.26 times as many stocks declining as rising to start the week. Importantly, any reading of 5 times or more of decliners vs advancers indicates a near-term bottom. Seems like it may have held true this time too.
2. On Monday, “put option” volume (betting stocks will go down) reached one of its highest readings of the past 10 years. When put option volumes spike, it is a sign that investors are very scared, which is supportive of near-term positive market returns. Prior spikes indicate investors are throwing in the towel and selling stocks out of fear. When this happens generally the market bottoms within a few days of the spike. Again, we think we’ve seen this.
This week the Federal Reserve meet and gave us clarity on their plans to start a bond purchase taper, consensus is that they’ll start a mild taper by the end of the year (this is a good thing). Likely they’ll take the opportunity to address the recent selling in the markets and provide calming guidance that they’ve got the market’s back with continued monetary and interest rate support. We expect they’ll continue to keep interest rates low for the foreseeable future.
You may have heard about the news of a possible default by China’s Evergrande corporation. In a positive move, Evergrande’s leadership announced a private deal to pay one if it’s debt payments on Thursday, easing the fear of default. Additionally, much like in the U.S., the Bank of Japan made no changes to its policy stance, and the People's Bank of China made no changes to its one-year and five-year loan prime rates for the 17th consecutive month, keeping with the stimulating theme.
Separately, the House passed a bill to fund the government through Dec. 3, 2021, and to suspend the debt ceiling through Dec. 16, 2022. The bill was expected to pass, but its fate in the Senate is looking less likely to succeed and the debt ceiling news continues.
MichaelGibbsWeekly9.23.2021.pdf
We hope you have a fantastic weekend, DeHaven, Michael, Janet, Mariah and Tamara.