Markets “In a Nutshell” for September 27, 2021
Investment Week at a Glance
Stocks finished higher for the week. The Dow Jones Industrial Average rose 0.60%, the S&P 500 was up 0.50%, and the NASDAQ was flat on the week. Foreign stocks (MSCI EAFE) were also up, rising 0.20%. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 1.45%. (Data source: Wall Street Journal)
Market Rebounds After Evergrande Worry
Last week Evergrande, which is a large Chinese property developer, came out and said they may have to default on their debt. Evergrande currently has over $300 billion of debt which is roughly 2% of China’s overall GDP. Markets reacted negatively to this news and fell nearly 2% in the trading session. This was the worst day for markets since May, and if we look at intraday prices this was the first time in nearly a year that the market has been 5% lower than its high. With a bad start to the week, investors were worried about what this could mean for the overall market, but worries have seemed to come and go for now as markets ended the week higher. Many banks have stated they do not have direct exposure to Evergrande’s debt and this potential issue should not threaten the financial stability of the global banking system.
Current Market Worries
Although last Monday the S&P 500 was down 5% from its high, the average stock in the S&P 500 was down 14% from its high. This shows that although the market as a whole has not seen a correction, many stocks within the market have. An area that has been hit hard is small caps as yields have started to tick up recently. The Russell 2000 was down 9% on Monday from its 52-week high but the average stock within that index was down 31% from its 52-week high. Some uncertainties causing this are the worries with the Government possibly having another shutdown if Congress is unable to pass a bill to fund the Government by September 30th. Another uncertainty is the need to raise the debt ceiling next month before the US defaults on its obligations. In looking at past Government shutdowns stocks have fallen as the date came closer, but once the Government has officially shutdown stocks rose 3% during the 2013 shutdown and 10% during the 2018/2019 shutdown. As we continue to face these headwinds it is expected that volatility will become more common but overall, there is a consensus that the economy and market are in good positions.
How long was the Government shutdown in 2018/2019? (Scroll Down for Answer)
Have a Great Week!
3. 34 days. This was the longest Government shutdown in U.S. history and cost the economy an expected $11 billion according to the Congressional Budget Office.