A Critical Six Weeks for Markets

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What’s in Today’s Report:

  • Why the Next Six Weeks Will be Critical for this Market
  • Weekly Market Preview:  Fed Tapering Plans Revealed
  • Weekly Economic Cheat Sheet:  What’s the State of the Global Recovery?

Futures are sharply lower on momentum from Friday’s declines, following a quiet weekend of news.

The reasons for the drop this morning are the same as last week:  China concerns (Evergrande, regulation, COVID), Fed tapering, and possible tax hikes, but nothing new occurred on any of those fronts this weekend to justify this mornings’ declines (meaning this is more about momentum than actual fundamental deterioration).

On taxes, headlines were actually slightly positive as Axios reported Senator Manchin wants to delay any increased spending/tax hikes until 2022.

Today the calendar is quiet as the only economic report is the Housing Market Index (E: 75), so pre-Fed positioning and momentum will drive trading today.  Ideally, we’d like to see stocks open deeply lower and then rally throughout the day (which would be the opposite of what we saw last week and imply a near-term bottom may be in).

What is Evergrande and Why Isn’t It Causing More Problems?

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What’s in Today’s Report:

  • What is Evergrande and Why Isn’t It Causing More Problems?

Futures are modestly lower on more negative China headlines following an otherwise quiet night.

Chinese authorities have extended anti-pollution directives to multiple cities and that’s causing a sharp drop in some industrial commodities (iron ore specifically) which is weighing on resource stocks in Europe.

Economically, UK Retail Sales missed estimates falling –0.9% vs. (E) 0.5% although the report isn’t moving markets.

Focus today will be on Consumer Sentiment (E: 72.0) and specifically inflation expectations, and if they spike higher (as we saw in the Fed survey earlier this week) don’t be surprised if there’s additional downward pressure on stocks.  Also, today is a “Quadruple Witching” options expiration which could mean big volumes and increased volatility into the close.

Tom Essaye Quoted in Barron’s on September 14, 2021

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The S&P 500 Is Going to Fall, Strategists Say. Even the Optimists Aren’t Very Upbeat.

This [supply constraints] will be a more substantial risk to the rally we’ll need to watch for…wrote Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in S&P Global on September 14, 2021

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US debt ceiling fight could cause markets to tumble, delay Fed taper

I think in a market that’s stretched, that doesn’t have a lot of backing at these fundamental levels, if you get some sort of serious scare, it could take 5% to 10% out of the S&P 500 pretty quick…Essaye said. Click here to read the full article.

End of the (Mild) Pullback?

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What’s in Today’s Report:

  • End of the (Mild) Pullback?
  • EIA Update and Oil Market Update (Breakout)

Futures are modestly lower as markets digest Wednesday’s rally following a quiet night of news.

Economically, the only notable report was Euro Zone exports, which beat expectations (1.0% vs. (E) -0.8%).

Politics remained in focus as centrist Democrats stopped the progress of a drug price control bill, highlighting the division in the party (this is an incremental positive as markets would prefer there are no policy changes at all this year).

Today focus will be on economic data, as markets will want to see stability in two reports, Jobless Claims (E: 315K) and Philadelphia Fed Manufacturing Index (E: 19.2), and not too big of a decline in August Retail Sales (E: -0.8%).  If we get another round of better than expected macro data, then stocks can extend yesterday’s gains.

Microeconomics vs. Macroeconomics

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What’s in Today’s Report:

  • Why Market Technicals, Internals, and Derivatives Are Weighing On Stocks Despite Mostly Good Fundamentals
  • The True Driver of This Pullback Remains Microeconomic, not Macroeconomic
  • CPI Takeaways

Futures are bouncing today while most international markets declined overnight amid stagflationary economic data.

Chinese Industrial Production, FAI, and Retail Sales data all missed estimates with the latter underwhelming by the largest margin which weighed on risk assets overnight, sparking renewed concerns about the pace of the global recovery.

Meanwhile, in Europe, CPI in the U.K. jumped from 2.0% to 3.2% in August, the largest monthly increase since 1997 which rekindled concerns about global inflation pressures despite yesterday’s soft CPI print in the U.S.

Today, focus will be on economic data early with the Empire State Manufacturing Index (E: 18.6), Import & Export Prices (E: 0.3%, 0.5%) and Industrial Production (E: 0.5%) all due out by mid-morning.

Investors will be looking for good growth (but not “too hot”) and fading inflation pressures (specifically in the Empire release as it is a September data point). Otherwise, more signs of stagflation, like we saw in the data overnight, could cause further selling across risk assets including stocks today.

Inflation Expectations

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What’s in Today’s Report:

  • Inflation Expectations

Stock futures are trading cautiously higher this morning while international markets were mixed overnight ahead of key U.S. inflation data.

Economically, the NFIB Small Business Optimism Index for August rose to 100.1 vs. (E) 99.0 which is helping U.S. equity markets edge higher in pre-market trade.

Today, there are no Treasury auctions or Fed officials scheduled to speak which will leave markets focused on the one major economic report today: CPI (E: 0.4%, 5.3%).

If the CPI report supports the transitory inflation narrative and suggests that price pressures have already peaked, stocks are likely going to be able to further stabilize after yesterday’s bounce. However, a “hot” print could easily trigger a wave of hawkish money flows and pressure the major indexes back down to fresh multi-week lows today.

Tom Essaye Quoted in Benzinga on September 9, 2021

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Key S&P 500 Levels To Watch As Market Endures 4th Straight Day Of Losses

And though that seems like another big leg higher for the S&P 500, it is only an additional 9% beyond the current record highs, something that is definitely within reason…Tom Essaye said, founder of Sevens Report Research. Click here to read the full article.

The Current Risks to the Rally

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What’s in Today’s Report:

  • The Current Risks to the Rally
  • Weekly Market Preview:  Increasing Headline Volatility?
  • Weekly Economic Cheat Sheet:  How Hot is Inflation and How Much Damage Has COVID Done to the Recovery?

Futures are modestly higher as global markets bounced from Friday’s declines, following a quiet weekend of news.

Tax hike chatter continued to rise over the weekend as Democrats proposed a 26.5% corporate tax (up from the current 21%) and a “top-tier” capital gains tax rate of 28.8% (up from the current 23.8%).

These changes aren’t likely or imminent, but it underscores the market will face tax hike headlines over the coming weeks and months.

There was no notable global economic data overnight.

Today there are no economic reports and no notable Fed speakers, so the focus will be on any more tax hike headlines and on short-term technicals.  Last week stocks were able to rally early in the day and faded in the afternoon.  If that happens again this morning look for downside momentum to pick up a bit and for more moderate declines.

What the ECB’s Surprise Taper Means for Markets

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What’s in Today’s Report:

  • What the ECB’s Surprise Taper Means for Markets
  • EIA Analysis and Oil Update

Futures are modestly higher following potentially positive news out of China.

First, on the geopolitical front, Biden and Xi held a call on Thursday night where they discussed avoiding conflict.  Second, Chinese regulators clarified they just slowed video game approvals, not halted them and that’s helping Chinese tech and internet stocks to rally.

On COVID, Biden’s mask mandates are getting a lot of headlines but they won’t have any direct market implications.

Today’s focus will be on PPI (E: 0.6%, 8.3%), which will give us the latest insights into inflation and if the number is materially higher than estimates, it will likely cause some mild volatility.  We also have one Fed speaker, Mester at 9:00 a.m. ET, and markets will look for confirmation that the Fed will start tapering QE this year, but it will be gradual.