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Pre-Markets Fill in Gaps from Tuesday's Big Selloff

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Wednesday, September 29, 2021

Markets are shaking off yesterday’s shake-out, where major indexes dropped another -1.6% (Dow) to -2.8% (Nasdaq) from already lower levels reached earlier this September. What we saw before yesterday’s open was the 10-year bond yield climbing quickly to 1.54%, energy prices spiking and worry building that U.S. legislators may not raise the debt ceiling, purely on political grounds.

Well, this morning the 10-year has settled to a milder 1.51%, and WTI, Brent and Nat Gas prices have all gone lower. We also saw a report from Boeing (BA - Free Report) that a test flight of its challenged 737 MAX in China was a success. As for the debt ceiling, this looks like a drama that will stay with us — perhaps through the Friday midnight deadline, which is a mere 40 hours from now. JPMorgan
(JPM - Free Report) CEO Jamie Dimon said not raising the debt ceiling would be “potentially catastrophic” for the U.S. economy.

Thus, what we see in today’s pre-market activity is the Dow +110 points at this hour, the S&P 500 +20 and the Nasdaq +90. Filling in gaps after one of the worst trading days of 2021 — the worst since either May or March, depending on the index — amounts to a sigh of relief that investors are not panicking… yet. Over the past five trading days, only the Dow and the small-cap Russell 2000 have managed slight gains, while the S&P and Nasdaq are down -0.7% and -1.8%, respectively.

It will be a big day for Fed commentary, with Chair Jay Powell appearing before a European Central Bank (ECB) forum today — likely to push his newly minted narrative that inflation does look like a longer-term threat than initially believed. In addition, Philly Fed President Patrick Harker, San Francisco’s Mary Daly and Atlanta’s Raphael Bostic all make appearances to discuss future monetary policy and present supply chain/inflation concerns.

After today’s opening bell, we also see a new Pending Home Sales release for August, with the headline expected to bounce back +0.4% last month from the -1.8% reported for July. That +0.4% estimate was the same as analysts had posited for July; we hope this particular history does not repeat itself. But demand in the housing market has been strong, and it has mostly been these supply chain/inflation issues keeping a wet blanket on the industry, along with the Delta variant’s influence in the South and plains.

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