The market has been on a roller coaster of a ride for a little over a week. Previously it was attributed to retail sales being higher and traders anxious about the beginning of the Fed’s taper. Now we are on to China’s “Lehman” moment. Evergrande, China’s second-largest property developer by sales, is heading towards bankruptcy. This has jolted the Chinese stock market and it is sending shock waves across all markets. The US stock market is shaken. Investors are waiting on Chinese authorities to bail out the distressed business. I’m not convinced it will happen. Will contagion spread? Possible but unlikely. I’ll have to look deeper into the amount of US banks with loans to Chinese firms. Same with European banks.
This week sees the FOMC meeting press conference on Wednesday. We’ll see if Powell has a little magic up his sleeve to calm fears. Powell also has a speech scheduled for Friday. The Fed only has one tool, will that tool work this time around?
Answers will come in time. I’m waiting on money supply data and margin debt figures. As soon as we see those, we’ll have a better understanding of how much this Evergrande failure could spread. In the meantime, it’s time to tighten up stop-loss points and close out unproductive holdings.