Market Overview

29 September 2021

Is Wall Street Really Spooked by a Lack of Consumer Confidence?

Just a day ago, all trading sessions on stocks were marked by another wave of total sell-off on Wall Street covering almost the entire spectrum of the market segments. It is worth mentioning that the "big five" of the U.S. financial institutions and energy companies came out better than others, with the Bank of America and JP Morgan Chase even managing to refresh their all-time record prices before they also very limitedly joined the overall correction. At the same time, Morgan Stanley, Goldman Sachs and Citigroup lost 2.91%, 2.58% and 1.23% correspondingly, compared to the previous day's close. 

The Dow Jones oil components, ExxonMobil and Chevron, added 1.05% and 0.38% before the end of the day, despite the fact that the Brent North-Sea benchmark rolled down from an intraday high of more than $80 per barrel to a humbler $77-78 area. However, in total, the Dow Jones Industrial Average index still fell by 1.63%, finally reaching as much as 700 points below the very attractive round figure of 35,000 due to the negative dynamics of the vast majority of other assets, and the losses of the S&P 500 broad market index even approached 2% at its nearest point of the day which was below the 4,350 landmark. Mega-cap technology stocks also sank. 

At the same time, the positive rebound of the U.S. index futures exceeded 0.8% after the middle of today's European session, which may indicate the improvement of some sentiments, which possibly gave a good chance for a higher opening of Wall Street later on in the day. This may confirm the conviction of a certain part of the market that  Tuesday's sales were mostly caused by the intention of account holders to be more protected so as to not see again the same percentage of drawdown in the costs of their portfolios that just took place a week before in course of the "mini Black Monday" on September 20. That is why many of them could sell the freshly and repeatedly risen shares as long as it was a more profitable decision, but perhaps the same investors could avoid new sales after the prices of their assets noticeably decreased. 

As for the purely formal reasons for yesterday's decline in stock quotes, all of them could be listed here, but frankly speaking none of them seemed worthy enough to produce such a negative result of the day. The most negatively significant were the consumer confidence data. The readings showed 109.3 points instead of the expected 114.5, and compared with 115.2 points on the last day of August, which belled the third month of decline in consumer confidence in a row after reaching the highest value of the year of 128.9 on June 29. However, this could hardly be considered as such a huge unpleasant surprise, considering that readings near 130 points or higher were last observed in the American economy back in 2018-2019 before the outbreak of the viral crisis. 

It would even be rather strange to maintain such a high level of consumer confidence in real economic conditions, when the population of the world leading countries is still experiencing the consequences of a shortage of money, since the lion's share of printed dollars and euros was not distributed to ordinary people, but mostly to big banks or businesses in the form of compensating subsidies. At the same time, the current consumer confidence indications are still approximately at the level corresponding to the spike, which occurred for the first time at the very end of March, but all the readings after that are much higher than all previous values of the same indicator since the very start of the corona-related damage (see Pic 1). 

Pic 1. The U.S. consumer confidence indicator in dynamics since 2017 until now

Source: Investing.com

Among other factors of turbulence in the markets, some concerns about the upcoming publication of the U.S PCE price index next Thursday could be highlighted, which may again sharpen the issue of inflation's significant excess over the Federal Reserve's targets. However, it is unlikely that the Fed's position may reasonably worry the investment community until November after the press conference of the head of the Federal Reserve Jerome Powell on September 22, which was obviously dovish in terms of possible further actions, or rather absence of any decisive actions at all. 

Again, on Tuesday, Jerome Powell repeated that the U.S. economy is still far from achieving maximum employment in a hearing before the U.S. Senate Banking Committee, while also flagging Fed's concerns over prolonged difficulties in a post-COVID economic reopening. However, the latter is rather an argument in favour of slower tapering, which means more dollars may be finally printed during the extended period of time. Markets usually like a tendency in which they believe that money is not superfluous in any way, but market capitalization will recover sooner or later. 

The situation around the Chinese developer Evergrande is also widely cited, while the uncertainty with payments to debt holders may remain suspended for another 30 days, like the Sword of Damocles. In one way or another the strength or weakness of future October trends could be significantly determined by whether the majority of the market will be able to redeem the current drawdowns before the end of this week, or the markets will sink deeper.

 

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Lysakov Sergey
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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