Ameriprise Financial Inc.
09/20/2021 | Press release | Distributed by Public on 09/20/2021 13:51
Investor Sentiment Will be Tested this Week
Investors are understandably on edge as the trading week gets underway. The Fed meets this week and may have more to say about its tapering plans. The highly leveraged Chinese real estate market is raising concern of a more widespread economic crisis. And in the U.S., the S&P 500® index closed below its 50-day moving average last week, raising uncertainty whether stocks will once again find support at that level as has been the case throughout the year.
There is a widespread expectation that the Fed will announce its tapering intentions sometime before the end of the year. A number of Fed watchers believe that such an announcement will come this Wednesday. Others believe it will not come until November, giving the Fed more time to survey conditions in the labor market, where it believes additional progress still needs to be made before it can begin to wind down its bond buying program. Either way, that an announcement is coming is subject to little debate. But the timing of it may have implications for investor sentiment. Inflation has been running above expectations for several months, and although the Fed thinks it will eventually subside, not everyone agrees. The Fed could announce its plans this week, and in so doing raise concerns that it may be more worried about the pace of inflation than it has stated publicly. If an announcement is made on Wednesday, the pace of reduction in the bond buying program will indicate its level of concern, inasmuch as the Fed would prefer to have completed its tapering before any consideration is given to raising interest rates.
Investors Keeping a Careful Eye on the Fed's Economic Projections this Week
The Fed's meeting this week will be accompanied by the release of its latest economic projections. It may be recalled that at its June meeting, when its economic projections were last released, the Fed surprised investors when some members indicated their preference for a first rate hike sooner than expected. Those same projections will be examined carefully for further evidence of where the FOMC's sentiment lies. Of course, the Fed has a lot of flexibility. It can delay any announcement beyond this week and taper at a faster pace than expected, and still ultimately concluding at the same desired end date.
And it should be noted that whenever tapering does begin, it means that the Fed will still be buying bonds for some time, continuing to add accommodation as its balance sheet continues to expand.
Weakness in China's Real Estate Market Sends Stocks Lower
Stocks in Hong Kong fell more than 3.0 percent on Monday on concerns that the largest Chinese real estate developer, Evergrande, will default on its bond payments due on Thursday. The real estate sector fell almost 7.0 percent. It is unclear whether the Chinese government will allow a default to happen or will engineer a restructuring. The fear is that a default could trigger a more widespread contagion in a sector of significant importance to the Chinese economy, now the world's second largest.
That such concerns are surfacing just as economic growth rates are being revised lower in many regions, including the U.S., adds to the anxiety and is resulting in a significant risk-off response as this week gets underway. Stocks in Europe are down more than 2.0 percent midday, the dollar is stronger, Treasury yields are lower, and the VIX index has spiked 20 percent higher from Friday's close. Futures on the S&P 500 are trading down by 1.4 percent.
Several Economic Reports Out this Week: Housing, Flash PMIs and Jobless Claims
The economic calendar will take a back seat to both the Fed and China this week, but there are several reports to watch. Housing conditions will be updated with August building permits and starts, and both new and existing home sales. Flash PMIs are expected to show some modest deceleration, but remain at a solid pace. The weekly jobless claims data is expected to show continued improvement, and leading indicators are anticipated to rise for the sixteenth straight month. And elections take place in Canada and Germany. But it will be investor sentiment that will be tested this week, especially after the American Association of Individual Investors (AAII) reported last week that the percentage of bulls in its weekly survey fell to the lowest level in over a year.
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources. This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
Investing involves risk including the risk of loss of principal.
The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) is a widely used measure of market risk. It shows the market's expectation of 30-day volatility. The VIX is constructed using the implied volatilities of a wide range of S&P 500 index options. VIX values greater than 30 are generally linked to a large volatility resulting from increased uncertainty, risk and investors' fear. VIX values below 20 generally correspond to stable, stress-free periods in the markets.
The Purchasing Managers' Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors. The PMI is based on five major survey areas: new orders, inventory levels, production, supplier deliveries, and employment. it is a leading indicator of economic conditions.
The flash services PMI is based on approximately 85 to 90 percent of total PMI responses each month. It is designed to provide an accurate advance indication of the final PMI data. As flash services PMIs are among the first economic indicators for each month, providing evidence of changing economic conditions ahead of comparable government statistics, they can have a significant effect on currency markets.
The AAII sentiment survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market short term; individuals are polled from the AAII Web site on a weekly basis.
Past performance is not a guarantee of future results.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
Definitions of individual indices mentioned in this article are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor.
Third party companies mentioned are not affiliated with Ameriprise Financial, Inc.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.
There is a widespread expectation that the Fed will announce its tapering intentions sometime before the end of the year. A number of Fed watchers believe that such an announcement will come this Wednesday. Others believe it will not come until November, giving the Fed more time to survey conditions in the labor market, where it believes additional progress still needs to be made before it can begin to wind down its bond buying program. Either way, that an announcement is coming is subject to little debate. But the timing of it may have implications for investor sentiment. Inflation has been running above expectations for several months, and although the Fed thinks it will eventually subside, not everyone agrees. The Fed could announce its plans this week, and in so doing raise concerns that it may be more worried about the pace of inflation than it has stated publicly. If an announcement is made on Wednesday, the pace of reduction in the bond buying program will indicate its level of concern, inasmuch as the Fed would prefer to have completed its tapering before any consideration is given to raising interest rates.
Investors Keeping a Careful Eye on the Fed's Economic Projections this Week
The Fed's meeting this week will be accompanied by the release of its latest economic projections. It may be recalled that at its June meeting, when its economic projections were last released, the Fed surprised investors when some members indicated their preference for a first rate hike sooner than expected. Those same projections will be examined carefully for further evidence of where the FOMC's sentiment lies. Of course, the Fed has a lot of flexibility. It can delay any announcement beyond this week and taper at a faster pace than expected, and still ultimately concluding at the same desired end date.
And it should be noted that whenever tapering does begin, it means that the Fed will still be buying bonds for some time, continuing to add accommodation as its balance sheet continues to expand.
Weakness in China's Real Estate Market Sends Stocks Lower
Stocks in Hong Kong fell more than 3.0 percent on Monday on concerns that the largest Chinese real estate developer, Evergrande, will default on its bond payments due on Thursday. The real estate sector fell almost 7.0 percent. It is unclear whether the Chinese government will allow a default to happen or will engineer a restructuring. The fear is that a default could trigger a more widespread contagion in a sector of significant importance to the Chinese economy, now the world's second largest.
That such concerns are surfacing just as economic growth rates are being revised lower in many regions, including the U.S., adds to the anxiety and is resulting in a significant risk-off response as this week gets underway. Stocks in Europe are down more than 2.0 percent midday, the dollar is stronger, Treasury yields are lower, and the VIX index has spiked 20 percent higher from Friday's close. Futures on the S&P 500 are trading down by 1.4 percent.
Several Economic Reports Out this Week: Housing, Flash PMIs and Jobless Claims
The economic calendar will take a back seat to both the Fed and China this week, but there are several reports to watch. Housing conditions will be updated with August building permits and starts, and both new and existing home sales. Flash PMIs are expected to show some modest deceleration, but remain at a solid pace. The weekly jobless claims data is expected to show continued improvement, and leading indicators are anticipated to rise for the sixteenth straight month. And elections take place in Canada and Germany. But it will be investor sentiment that will be tested this week, especially after the American Association of Individual Investors (AAII) reported last week that the percentage of bulls in its weekly survey fell to the lowest level in over a year.
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources. This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
Investing involves risk including the risk of loss of principal.
The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) is a widely used measure of market risk. It shows the market's expectation of 30-day volatility. The VIX is constructed using the implied volatilities of a wide range of S&P 500 index options. VIX values greater than 30 are generally linked to a large volatility resulting from increased uncertainty, risk and investors' fear. VIX values below 20 generally correspond to stable, stress-free periods in the markets.
The Purchasing Managers' Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors. The PMI is based on five major survey areas: new orders, inventory levels, production, supplier deliveries, and employment. it is a leading indicator of economic conditions.
The flash services PMI is based on approximately 85 to 90 percent of total PMI responses each month. It is designed to provide an accurate advance indication of the final PMI data. As flash services PMIs are among the first economic indicators for each month, providing evidence of changing economic conditions ahead of comparable government statistics, they can have a significant effect on currency markets.
The AAII sentiment survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market short term; individuals are polled from the AAII Web site on a weekly basis.
Past performance is not a guarantee of future results.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
Definitions of individual indices mentioned in this article are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor.
Third party companies mentioned are not affiliated with Ameriprise Financial, Inc.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.