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Some Knocks Under the Hood

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Chief Market Analyst

The major indices are on track for a winning week, but they aren’t sitting on a large cushion entering today. Gains for the week range from 0.2% to 0.4%, meaning it won’t take a whole lot to swing them into a losing position if sellers are able to exert some lasting influence on this quadruple witching options expiration day.

The latter entails the expiration of individual stock options, individual stock futures, index options, and index futures. Trading volume, therefore, should be on the heavy side today as a result of these expirations.

Currently, the futures for the major indices are on the flat side, yet that leaves them slightly above fair value. That should translate into a slightly higher start for the cash indices, assuming things stay the same into the opening bell at 9:30 a.m. ET.

Once again, there isn’t a lot of corporate news to drive things.

There are some story stocks like U.S. Steel (X), which raised its Q3 adjusted EBITDA guidance, Pebblebrook Hotel Trust (PEB), which highlighted a mid-August softening in corporate transient demand given concerns about the Delta variant, and Invesco (IVZ), which The Wall Street Journal reports might be looking to merge with State Street’s (STT) asset management business.

None of these stocks, however, has market-moving cachet.

In a certain respect, the market has acted as its own catalyst this week, maintaining a posture above its 50-day moving average (now 4437) and not succumbing to selling efforts.

Traders will be watching to see if that resilience can win out again today despite plenty of chatter on the strategist side about weakening market breadth, which is to say the car is still running but there is some knocking under the hood that could lead to an eventual breakdown.

It’s not certain if the discussions related to the $3.5 trillion infrastructure plan will breakdown, yet there is definitely some knocking under the hood. Press reports indicate President Biden was unable to persuade Senator Manchin (D-WV) to get on board with the $3.5 trln plan. That’s newsworthy because the Democrats need every Democrat to vote for the plan to get it passed in the reconciliation process. 

In any case, these discussions remain a palpable point of uncertainty along with the effort to pass a continuing resolution at the end of the month and to raise the debt ceiling before extraordinary measures taken by the Treasury Department are exhausted, most likely in October according to Treasury Secretary Yellen.

There is also some unease about China’s regulatory crackdown and separate reports noting Evergrande — China’s second largest property firm by sales — could soon default on its debt and create some systemic financial problems as a result of doing so. 

This is all happening at the same time BofA reports global equity funds saw their largest inflows ($51.2 bln) in the week ended September 15 since March and money market funds had their largest outflow ($61.8 bln) since July 2020.

That’s not exactly a flow of fear, yet it does perhaps point to a flow of complacency that is one more knock under the hood.

Originally Posted on September 17, 2021 – Some Knocks Under the Hood

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