Market Has Five Red Days in A Row As Risks Are Processed

Key Takeaways

– S&P 500 closed at 4,458.58 down from 4,535.43 last week. The VIX spiked 11.44% and settled just under $21 after 5 straight red days

– The market started the morning in the green, but appeared to have been spooked by the PPI coming in at a record of 8.3%, which was also slightly above the estimated level

– Oil closed up over 2% and settled just below $70 despite all sectors closing in the red, suggesting inflationary fears were at play

– Tuesday saw a large crypto sell-off and Friday saw a big anti-trust ruling for Apple that broke its hold on the Ap store revenue, but the company was not designated a monopoly
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We’d like to start this Wall Street Debrief off, which falls on the 20^th anniversary of September 11^th, by remembering the many innocent souls who perished on that terrible day. Many people in the Financial Industry were amongst the victims and it is hard to believe this occurred two decades ago. The entire FSInsight team would like to offer our thoughts and prayers to the surviving loved ones and friends of the victims. Though the wound is not as fresh as it once was, the tragedy is no less severe. Many of our team knew people who perished and all of us were affected by that day. Let us all hope that the wanton violence that occurred on that day never occurs again.

Well, five red days in a row hasn’t been a recent occurrence. The bearish chorus on the street is growing in volume and there is certainly no shortage of ice bergs in the path of the market. So, keep a watchful eye, but if a correction does come, please don’t panic. We are convinced that the upcoming concerns may be temporarily problematic, nonetheless, we see ourselves as in early stages of a bull-market largely supported by generational and demographic realities.

While the focus on monetary policy has been prominent in public discussion, the fiscal side of the equation in the United States may become more prominent as the debate over infrastructure, the proposed $3.5 trillion stimulus and the ever-contentious debt ceiling will be coming to a head in coming weeks. My colleague Tom Block will discuss some of these upcoming risks in greater detail below.

Stocks weren’t the only asset class to experience turbulence this week. On Tuesday, there was a widespread sell-off in cryptocurrency. However, in contrast to the large narrative driven sell-off last May, our team found that this sell-off was more associated with forced liquidations and structural issues rather than any identifiable risk. There was $4 billion in liquidations, a large portion of which were altcoins. Despite this sell-off there was strong subsequent buying support for Ethereum and Bitcoin.

Even though there have been some signs of an impending denouement in some of the aggressive actions of an increasingly assertive and shameless Chinese Communist Party, markets seem skeptical of further crackdowns. Xi’s second in command, Vice Premier Liu made a public show of support for easing pressure on the private sector. The market appears unconvinced. Japan’s stock market, which tends to benefit from inflation, has been picking up performance relative to US markets recently, despite trailing them for much of the year.

The sectors that suffered the most were a mixed bag of Utilities, Real Estate, Technology and Healthcare. Epicenter sectors performed relatively better today. The economic affects of the Delta-driven slowdown are making their way into the data. The duration and severity of the affects are not yet fully apparent, and a recent data interruption around Labor Day contributed to an obscure picture. Airlines, for instance, largely re-updated their forecasts to be more pessimistic after TSA traffic has plummeted due to rising healthcare concerns.

Energy, which can often lead down days held up quite nicely today. We understand it has been a painful sector to be in as the uncertainty associated with the Delta variant consistently rose. However, we remain very confident in the macroeconomic logic for favoring this sector. The secular price dynamics as well as the central role we believe many Energy companies will play in de-carbonization make us think there is still a great risk/reward tradeoff here.

We mentioned a few weeks ago that we believed that data would be softening, but that the implications of this for the timeline of accommodative Fed policy would outweigh the negatives. October, we believe, will prove a bit tricker as multiple risks will likely be coming to a head and that means a lot of headline risk. Certainly, even a technical default on US debt has the potential to significantly roil markets.

President Biden announced on Thursday a six-pronged plan to tackle the rise of the Delta variant including vaccination mandates implemented through the Department of Labor for companies with over 100 employees. While we understand this may be controversial and respect everyone’s views, we do think this is a positive for the economy and well within the bounds of established legal precedent in the United States. We do expect September to be an un-seasonally positive month, but rapids are ahead. However, we are big believers in the benefits of equity ownership over the long-term. Timing markets is hard even for the hardest and most seasoned traders. Put some tape over the red button, because we believe the glass is still half full.