But to keep advancing, stocks will need to surmount a lengthening list of anxieties simmering under the surface that threaten to curtail the year’s spectacular run.
“We’ve been in the camp that we’re overdue for a correction, something in the 5-10% range that is a buyable pullback,” said Cliff Hodge, chief investment officer at Cornerstone Wealth.
This may not be the week. Bespoke Investment Group has highlighted the prevalence of “turnaround Tuesdays,” observing that after Monday losses of 1.5% or more, the following trading session has “much more frequently led to gains of more than 1% than losses of more than 1%.”
Evergrande: Attention on Monday focused on Evergrande, the Chinese conglomerate battling a debt crisis. Should the company default on its massive liabilities, there are fears it could spark a “Lehman moment,” in which the collapse of a single entity ricochets throughout the financial system.
Growth: The Evergrande saga could weigh on China’s property sector, a key engine of growth, at a time when the world’s second largest economy is already stalling.
Inflation: The Organization for Economic Cooperation and Development upgraded its inflation forecast for 2021 and 2022 on Tuesday. It now predicts that consumer inflation across G20 countries will sit at 4.5% at the end of this year before easing slightly to 3.5% by the end of next year — still much higher than the long-term trend.
“Supply pressures should fade gradually, wage growth remains moderate and inflation expectations are still anchored, but near-term risks are on the upside,” the OECD said in its report.
The Fed: The most immediate concern is the upcoming policy announcement from the Federal Reserve on Wednesday.
The meeting is expected to be a crucial indicator of how quickly the central bank plans to pull back crisis-era support for the economy. Consensus is growing that the Fed will hold off until November before announcing a taper that kicks in by year-end. Tomorrow’s meeting will also include the publication of the Fed’s latest economic projections, and its “dot plot,” which signals when individual members expect interest rate hikes to take effect.
Universal Music shares jump in Amsterdam debut
Music streaming is booming, and investors desperately want a piece of the action.
The latest: Shares of Universal Music Group, which were spun off by French media conglomerate Vivendi, were last up 35% in their market debut in Amsterdam on Tuesday.
The world’s biggest label, which is now valued at roughly $53 billion, is home to stars including Ariana Grande, Taylor Swift, Justin Bieber and Billie Eilish, and also controls the back catalogues of music greats like Marvin Gaye, The Rolling Stones and Frank Sinatra.
Following the listing, Vivendi holds a 10% stake in the company. A consortium led by China’s Tencent controls another 20%, while billionaire Bill Ackman’s Pershing Square also owns 10%.
Step back: Subscription music services have become hugely important to UMG, which has bet that streaming will help offset declines in physical sales.
In 2020, UMG generated €3.8 billion ($4.5 billion) of revenue from subscription music services and ad-supported streaming. That’s a big chunk of the €7.4 billion ($8.7 billion) it brought in overall.
Analysts at UBS have called UMG a “unique low risk high growth asset” for those looking to cash in on the streaming moment. The bank pointed out in a recent note to clients that the label not only has “an irreplaceable deep catalogue,” but also represents the industry’s top current talent.
Global market angst sends bitcoin lower
Pressure on global markets never seems to be good news for cryptocurrencies. This time has been no exception.
Evergrande “is putting a tremendous dent in risk appetite that is sending everything lower,” Oanda senior market analyst Edward Moya told clients.
He added that cryptocurrencies have performed well this year “despite all the volatility.” That means “it should not surprise Wall Street they are the first asset sold in the beginning of China-driven market selloff” as investors take some cash off the table.
Watch this space: Not everyone is banking profits, however. Nayib Bukele, the president of El Salvador — which recently became the world’s first country to adopt the bitcoin as legal tender — said Monday that the country purchased 150 additional bitcoins, bringing its total holdings to 700 coins.
“They can never beat you if you buy the dips,” he tweeted.
Also today: US housing starts and building permits for August post at 8:30 a.m. ET.
Coming tomorrow: The latest policy decision from the Federal Reserve.
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