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Markets Climb Off Session Lows, Still Down Big

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Well, we staved off the worst of the stock market storm hitting the markets today, and saw some bargain-shopping in the last hour of the regular session. The Dow, which had been -972 points at its lowest level today, but wound up closing -614 points, or -1.78%. This is roughly where the Dow came in at this morning’s open. Likewise the S&P 500, which dropped -1.7% on the day. The Nasdaq was worse, -2.19%, and the Russell 2000 came in lower than that, at -2.44%.

The “Chinese contagion” trade did deplete all sectors for the day; almost nothing survived this 2%+ knee-capping, including those with less to do with Chinese manufacturing or marketplaces. Tech was down -2% (subsector Semis did worse, -2.5%), Energy -3%. Consumer Discretionary was -2.5%. Bitcoin and Ethernet had dropped -10% earlier, but bounced back similar to equities, -7.8%. And the 10-year remained relatively steady at +1.3%. We’re not seeing panic-buying into bonds here, which is good.

Nevertheless, it is the worst trading day for Nasdaq, the S&P and the Russell since May. The Nasdaq is back below 15K, where it hasn’t been since late August. Unsurprisingly, companies heavily invested in China — either in terms of manufacturing or selling their wares in the country, or both — fared worst for today. NVIDIA (NVDA - Free Report) fell -3.6% and Ford (F - Free Report) was -5.4%. Then again, consider these stocks are +61% and +50.5%, year to date.

Which brings us to an important point: many of these companies are still trading in an orbit they’ve need been to before. Gains have been steadily and prevalent — especially in tech and related growth industries — basically since the 10-year bond yield peaked around +1.75% in late March. And we haven’t seen a significant bite out of market indexes since October of last year. (So far, at least. We may not be seeing the end of this negative mood quite yet.)

Perhaps, however, what we saw in the last hour of trading today was a bit of “Fed drift,” as the Federal Open Market Committee (FOMC) commences tomorrow, with a new report and a presser from Fed Chair Jay Powell. Currently, the hive mind does not see the tapering of asset purchases being addressed this week, and the odds are probably even better now that China is showing some distinct signs of economic weakness as it attempts to more strongly regulate its markets.

What many investors do expect is perhaps a forward glimpse of the taper being a future necessity, but no firm announcement of a new monetary program until the FOMC meets again in November. That announcement would presumably put the December meeting on the timeline for tapering the buybacks — more or less on time with the start of 2021 as the period to be looking toward in terms of raiding interest rates. Data-permitting, of course.

Tomorrow morning, our concerns turn domestic, with Housing Starts and Building Permits for August expected to remain consistent with the previous month. Speaking of housing, Lennar Corp. (LEN - Free Report) reported mixed results in its fiscal Q3 earnings report this afternoon, with earnings of $4.52 per share easily beating the Zacks consensus, but revenues of $6.51 billion coming up short. Record quarterly gross margins of 27% are countered by supply-chain challenges “for the foreseeable future.”

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