US Close: September Selling, Evergrande fears, Manchin move, CAD lower

US stocks are selling off sharply as seasonal factors have allowed the Evergrande story to help deliver the first meaningful pullback since February.  It just seems all the headlines to start the trading week are bearish; Evergrande’s debt fears and contagion, Chip shortage issues persist, PM Johnson is going after Amazon’s taxes, lackluster IPO performance after another record year, and as some Fed officials have begun to sell their stock amid ethics concerns. (earlier this month Fed’s Kaplan and Rosengren said they will sell all their individual stock holdings by September 30th).  

The Evergrande crisis and fears of a credit squeeze was enough to weigh on sentiment.  Market contagion in Asia is happening as excessive risk taking in China has always been the story.  Letting Evergrande fail would send the market the right signal that China is serious about controlling debt, but Beijing will likely support whatever is necessary to avoid sending shock waves through their financial system. 

The democratic senator from West Virginia threw a curve ball for the Biden administration in thinking Congress should take a “strategic pause” until 2022 before delivering on the spending bill which could derail everything else. This might just be posturing but it does raise the risk that investors may have been a little too optimistic in expecting infrastructure and ~$2 trillion spending package.

S&P 500 futures has now dropped over 5% from the record high territory and is tentatively breaking below the 100-day simple moving average.  The 4,200 level should provide some support, with many institutional investors automatically buying the ahead of 4,094.55 level that would signify a 10% pullback from the record high. 

Canada

The Canadian dollar declined after a market-selloff sent crude prices tumbling and as investors await the outcome to the Canadian Federal Election.  In what is turning out to be a very close election, expectations are high that the biggest risk outcome of a minority government seems likely, which would mean gridlock and little optimism in the government getting any new policies done. 

The loonie is getting picked on because oil prices are tumbling and it looks like Canada may have to deal with a minority government that won’t be effective with any new policy initiatives. 

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