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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