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RUSSELL2000 dips below 200dma

For the first time in over a year, the RUSSELL 2000 (Small Cap Index) broke below its 200 day-moving-average.  The insolvency of Evergrande (China’s second largest real estate developer) is being blamed for the calamity, but I don’t think there will be a contagion.  China’s problems are much larger than Evergrande, and I believe the real threat to the US economy will likely be China’s crackdown on foreign owned companies…but for now, that’s in the future.

I think today’s pullback is primarily due to concerns over Federal Reserve monetary policy (fear of tightening) and the US debt ceiling (fear of shutdown or default).

  • This week the FED is holding a FOMC meeting.  Because of the market pullback, I believe they’ll soften their tone on Tapering and their dovish stance will support higher stock prices.
  • The Federal debt ceiling must be extended before Oct 1 to avert a government shutdown or default.  I believe the market pullback will incentivize the Congress to pass a debt ceiling extension, which will support higher stock prices.

Last week I recorded a podcast episode stating that I’m not concerned about a Sep/Oct stock market crash, I remain unconcerned.  You can listen to that episode here:  https://www.wealthsteading.com/338

I think that as the economy continues to reopen, corporate profits will remain strong and stocks will go on to make new highs.  For now, I continue to embrace the phrase “buy the dip”.

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