Hope you are all doing well. The bumpy path that U.S. stocks began to take entering mid-September got a good deal bumpier on Monday with a big drop. Even with the drop Monday, the S&P 500 recovered to post a positive result for the first time in three weeks. Both that index and the Dow recorded gains of around 0.5%; the NASDAQ’s gain was smaller. Paul Simon played live in Central Park yesterday evening so I have broken down this week’s news using some of his classics.
Bridge Over Troubled Water
China worries had the markets feeling down and out on Monday’s drop. Concern about a potential default by a heavily indebted property development company in China—a situation that could weigh on global economic growth. Monday’s fear was quick to dissipate because a slew of banks issued statements emphasizing their limited direct exposure to the property developer. The direct exposure to Evergrande’s debt owned by non-Chinese creditors and investors does not appear large enough to threaten the financial stability of the global banking system.
Slip Slidin’ Away
The nearer U.S. Federal Reserve’s gets to their destination the more the stimulus is slip slidin’ away. The widely anticipated pullback of its bond-buying stimulus program might be not so far off. The Fed signaled that it could be ready to start trimming its bond purchases as soon as early November. In addition, it could implement the first in a series of potential interest-rate increases sometime next year though expect that to be late in 2022 if at all.
The Sound of Silence
U.S. politics loomed larger in financial markets as a potential source of volatility. As a vision of U.S. default is softly creeping, Congress remained at odds over raising the federal borrowing limit—or debt ceiling. The government will run out of money to pay its bills sometime over the next month or so. The debt ceiling debate will make markets volatile, but I remain confident a deal will get done and the U.S. will pay its bills.
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