rajeshblog/federal-bail-out-stocks A closer look at the current Federal Reserve Comments

ALL BLOG CONTENT IS FOR INFORMATIONAL PURPOSES ONLY. ANY REFERENCE TO OR MENTION OF INDIVIDUAL STOCKS, INDEXES, OR OTHER SECURITIES ARE NOT RECOMMENDATIONS AND ARE SPECIFICALLY NOT REFERENCED AS PAST RECOMMENDATIONS OF PATTON WEALTH ADVISORS. ALL GRAPHS, CHARTS, AND TABLES ARE PROVIDED FOR ILLUSTRATION PURPOSES ONLY. EXPRESSIONS OF OPINION ARE ALSO NOT RECOMMENDATIONS AND ARE SUBJECT TO CHANGE WITHOUT NOTICE IN REACTION TO SHIFTING MARKET, ECONOMIC, OR POLITICAL CONDITIONS.

A closer look at the current Federal Reserve Comments

25 September, 2021

Summary

  • Chinese real estate developer Evergrande teeters on the brink of collapse fueling fears worldwide.
  • The Federal Reserve suggested higher interest rates are coming sooner than originally expected.
  • The housing market remains hot although the pace of acceleration appears to have peaked.

This Week’s Performance Highlights

Market Indexes week ending September 25, 2021

Source: www.YCharts.com

  • Stocks started the week moving sharply lower on concerns about China’s Evergrande, a massive real estate developer in the midst of collapsing, with the Dow Jones Industrials down as much as 971 points before rebounding somewhat to close lower by 616.  The following day stocks rallied in the morning then struggled and again closed lower but the tide shifted Wednesday following word from the Federal Reserve that they anticipate raising rates sooner than originally indicated.
  • By the close of the week large U.S. stocks, as measured by both the S&P 500 and Dow Jones Industrials, were up +0.6% while the tech-heavy NASDAQ lagged behind closing nearly unchanged.  Small U.S. stocks also gained +0.6%.
  • The two sectors posting the biggest gains for the week were Energy and Financials up +4.6% and +2.2% respectively.  Energy stocks were helped by a rally in the price of oil by more than $2.50 per barrel to close at $74.54 up from the low $60’s about a month ago.  Financials were helped by rising bond yields and the anticipation of higher interest coming from the Fed.
  • Also among the winners were many travel related stocks as illustrated in the accompanying table.  Airline stocks got a lift from news that travel restrictions are easing opening up more opportunities for more travel and other stocks tagged along for the ride.

    Travel Related Stocks

    www.YCharts.com

  • International stocks lagged behind U.S. stocks for the week with developed markets on average lower by -0.3%.  The performance was mixed though with Eurozone market higher helped by gains in France, Italy, and Spain among others while stocks in Japan fell by -1.1%.
  • Emerging markets were hurt again by meaningful losses in China with stocks there off -4.2% for the week and now down -29.8% from their mid-February highs.  This week’s losses in China were blamed on news that a massive Chinese real estate development firm, Evergrande, is having a difficulties paying suppliers and has warned that it could default on its debt.  In spite of the big loss in China, the average emerging market was down just -1.2%.
  • Commodities posted a +2.1% gain, helped by rising oil prices, and are now up +34.9% for the year.  Gold and real estate stocks edged lower by -0.3% and -0.4% respectively.
  • Bond prices had a relatively tough week down -0.4%.  Prices fell and yields spiked following the Federal Reserve’s announcement on Wednesday that it expects to raise interest rates sooner than previously indicated.  The yield on the benchmark 10-Year U.S. Treasury climbed from 1.371% to close the week at 1.454%.

Interesting Numbers

$300 billion

Chinese real estate development firm Evergrande, with more than 1,300 projects and 200,000 employees, is reportedly on the brink of collapse being crushed under a debt load that is more than any other company in the world of $300 billion.  The company’s stock has lost more than 90% of its value since mid-2020 with the company saying it could default on its debts.  Some analysts are saying this would be the biggest test of China’s financial system in years with ramifications that could ripple worldwide.  Investors around the world were rattled by this news early in the week with jitters then subsiding.  Time will tell if this is a one-off event or just the tip of the iceberg.

Economic Indicators

New Home Sales: 740,000

Existing Home Sales: 5.88 million

New home sales rose by 11,000 homes to an annualized rate of 740,000 while existing home sales slipped to 5.88 million annually from 6.00 million the month before.  The average price for a new home rose to $390,900 equaling the July record high.  Overall inventories are improving which should reduce some of the upward pressure on prices.

As the accompanying graph shows, the rate of both new and existing home sales is higher than it was pre-COVID but both have come off their peaks.

New Home Sales and Existing Home Sales

Source: New Homes Sales: https://fred.stlouisfed.org/series/HSN1F; Existing Home Sales: www.YCharts.com

Markit Manufacturing PMI: 60.5

Markit Services PMI: 54.4

Upcoming Economic Reports

  • Durable Goods Orders
  • Consumer Confidence Index
  • S&P Case-Shiller Home Price Index
  • Disposable Income and Consumer Spending

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Any specific securities or investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own situation before making any investment decision including whether to retain an investment adviser.

All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. This content was created as of the specific date indicated and reflects the author’s views as of that date. Supporting documentation for any claims or statistical information is available upon request.

Past performance is no guarantee of future results.  Any comments about the performance of securities, markets, or indexes and any opinions presented are not to be viewed as indicators of future performance.

Investing involves risk including loss of principal.

Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly. For more information on specific indexes please see here[TR[1] .

Any charts, tables, forecasts, etc. contained herein are for illustrative purposes only, may be based upon proprietary research, and are developed through analysis of historical public data.

All corporate names shown above are for illustrative purposes only and are NOT recommendations.

International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Lower-rated securities are subject to greater credit risk, default risk, and liquidity risk.

Contact Mark A. Patton :