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The Outlook for Stocks

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The Outlook for Stocks: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Has the Outlook for Stocks Really Turned More Negative?
  • Weekly Market Preview:  Will Treasury Yields Keep Rising?
  • Weekly Economic Cheat Sheet:  Key Inflation Data This Week

Futures are slightly lower as negative Chinese real estate news offset the end of the Writers Guild of America strike.

Also, Chinese property firm Evergrande hit a setback in its restructuring deal. And that’s increasing liquidation chances (which would weigh on the Chinese economy).

Positively, the WGA struck a deal with Hollywood studios and ended their strike. Although two other major strikes remain in place (SAG-AFTRA and the UAW).

Today should be a generally quiet day in the markets from a news and volume standpoint, as it’s the Yom Kippur holiday and there are only two notable events on the calendar:  Chicago Fed National Activity Index (E: 0.15) and a speech by Fed member Kashkari (6:00 p.m. ET).  So, we should continue to expect Treasury yields to drive trading today, and if yields move steadily higher (as they are this morning) then that likely will weigh further on stocks.

the Outlook for Stocks

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Another Reason Treasury Yields Are Rising

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What’s in Today’s Report:

  • Another Reason Treasury Yields Are Rising

Futures are modestly lower on more negative real estate news from China while Japanese inflation was hotter than expected.

Chinese real estate firm Evergrande filed for bankruptcy overnight, increasing concerns about the Chinese property market specifically and economy more broadly.

Economically, Japanese CPI was in-line (up 3.3% y/y) but services inflation rose to 2%, a 30 year high, and that’s increasing expectations the BOJ may get more hawkish (and that would put more upward pressure on global bond yields, which would increase the headwind on stocks).

Today there are no notable economic reports nor any Fed speakers so focus will remain on Treasury yields, and the market needs stability in yields for stocks to bounce back.  A sudden drop in yields on growth concerns (which is what we’re seeing this morning) or a sharp rally in yields (on inflation concerns) will only further pressure stocks, so the sooner yields can “calm down” and trade little changed, the better for stocks.

Tom Essaye Quoted in OPTO on September 28, 2021

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Why the Evergrande crisis is causing global market jitters

There really isn’t a global contagion risk with Evergrande because in the end, and as far as we know, the loans…wrote Tom Essaye, the founder of Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in Forbes on September 27, 2021

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Evergrande And Chinese Regulators Pummel Crypto Markets

The losses quickly spread to broader markets as experts started warning its default…market analyst Tom Essaye wrote in a note last week. Click here to read the full article.

Why Did Stocks Drop Again?

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What’s in Today’s Report:

  • Why Are Stocks Dropping Again? (Three Reasons)
  • Chart: 10-Year Treasury Yield

Stock futures are rebounding from yesterday’s sharp losses this morning as bond yields pullback with the 10-year dipping below 1.50% overnight, easing valuation concerns.

Regarding Evergrande, the company’s stock rallied 15% overnight as the developer announced the partial sale of a regional bank stake that will result in $1.5B in cash.

Looking into today’s session there is one economic report: Pending Home Sales Index (E: 0.9%) but it should not move markets.

That will leave traders focused on a busy day of Fed chatter: Harker (9:00 a.m. ET), Powell (11:45 a.m. ET), Daly (1:00 p.m. ET), Bostic (2:00 p.m. ET), and Williams (5:00 p.m. ET).

Bottom line, the bond market has been a major driver of equity flows this week and if yields continue to pullback as they did overnight, then a rebound in the major stock indexes is likely however a retest of yesterday’s highs would result in another uptick in volatility.

Tom Essaye Quoted in Forbes on September 23, 2021

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Dow Soars Another 500 Points As Investors Rally Around Fed, China Stimulus Plans

It’s now clear that Chinese officials won’t allow a disorderly default, and that’s really all global markets care about…money manager Tom Essaye, president of Sevens Report Research wrote. Click here to read the full article.

Tom Essaye Quoted in OI Canadian Gaming News on September 21, 2021

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$250 billion vanishes from cryptocurrency market due to Evergrande case

The losses quickly spread to broader markets as experts began to warn that…wrote market analyst Tom Essaye, author of the Sevens Report, in a note last week. Click here to read the full article.

Tom Essay Quoted in UK News Today on September 20, 2021

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Crypto Markets Suddenly Lose $250 Billion In Value As Evergrande Turmoil Pummels Bitcoin, Ethereum And Other Major Cryptocurrencies

The losses quickly spread to broader markets as experts started warning its default could…market analyst Tom Essaye, author of the Sevens Report, wrote in a note last week. Click here to read the full article.

Tom Essaye Quoted in Quartz on September 21, 2021

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Evergrande is a massive problem—but it’s China’s problem

But it operates like one large company. Yes, there are “private” banks in China and yes, there are “private” corporations, but in the end the Communist Party…wrote Sevens Report Research president Tom Essaye in a note last week. Click here to read the full article.

Technical Levels to Watch Today

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What’s in Today’s Report:

  • Technical Update: Key Support and Upside Targets for the S&P 500

Markets are trading with a risk-on tone this morning after some positive Evergrande developments while focus continues to shift to the conclusion of today’s Fed meeting.

Evergrande announced overnight that the company would not default on a bond payment due tomorrow (but details were vague) while the PBOC injected 120B yuan of liquidity into the system helping ease financial conditions overnight.

Today there is one economic report due out early: Existing Home Sales (E: 5.90M), but the primary market focus will be the FOMC Meeting Announcement (2:00 p.m. ET) followed by the Fed Chair Press Conference (2:30 p.m. ET).

With regard to the Fed, any outcome that meets our “What’s Expected” or “Dovish If” outcomes from yesterday’s FOMC Preview will likely trigger a further relief rally while a “Hawkish If” scenario has the potential to spur another wave of elevated volatility with a high likelihood of stocks testing Monday’s lows.