No Wall of Worry: A Worrying Prospect

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Goldman Sachs and Morgan Stanley release bearish notes on the Delta variant and slowing economic growth; MS warns of a 10% to 15% pullback in the coming months. It used to be the case that the infamous Wall of Worry was nothing to worry about. 

The prolonged absence of a substantially larger wall that comes about with a 10% dip is starting to give some investors the jitters; that perhaps, they’re overstaying their welcome.

The long-awaited yet anticlimactic Producer Price Index (PPI) report for August came in last Friday. The US market dived to end a 5-day losing streak, but still, there isn’t much there in terms of compelling economic news. Everyone’s pretending something’s there, that maybe there’s a real economic narrative behind it all. Still, the critical strips are being revealed piecemeal, and each item tells us nothing notable. It’s like the emperor’s new clothes.

Even the European Central Bank (ECB) announcement last Thursday, which has often been market-moving, yielded nothing new. So, the ECB did mention its dialling back on its emergency bond purchases. But did they? 

ECB President Lagarde used the announcement press conference to say that no “real” tapering may be necessary until inflation becomes problematic. Given that Europe’s inflation rate is below the ECB’s 2% target, that must mean the tapering it’s talking about isn’t a real taper. Isn’t a taper a taper a taper?

In the meantime, September is living up to its reputation (at least in the US markets) of a down month. In the current market environment, however, we’ve seen how things can change on a dime.

Nevertheless, watch for what some notable market experts have been pointing out on the horizon: 

  • Watch for overall lowering of earnings guidance in certain sectors (you have to stay on your feet to follow this).
  • Keep your eyes on the Fed for tapering hints, especially after releasing specific critical data (PPI, CPI, and anything employment-related).
  • Watch the 10-year Treasury yields—currently occupying a “goldilocks” range at 1.34%.


There’s a lot more happening geopolitically and macroeconomically. Although we can’t cover everything, the main point here is to keep your eyes open, for markets are a bit sensitive right now; sensitivity means volatility, however short-term (or long-term) it may be.

Economic News Watch

Transporting a 45 pound kettlebell for a few seconds can be a simple task, but accidentally dropping it on your foot can put you partially out of commission for a few days or more. It depends on how you’re positioned. This coming week looks sparse in terms of market moving economic data, but they come in heavy.

The US Consumer Price Index (CPI) may weigh heavily on the Fed’s tapering decisions.

The AUD Employment Change is another heavy piece of data to affect domestic market sentiment and monetary outlook.

Retail data in the US can give us a clue as to what the markets might expect in third-quarter earnings. It’s also an indication of money velocity, whether spending may exacerbate inflation’s continuing surge.

And finally, Europe’s CPI on Friday may or may not shift the ECB’s “non-tapering taper” position, as we mentioned above.

Strength and Sentiment Square Off (in a Triangle)

Technically, ascending triangles are bullish. If they break out toward the upside, they have a 70% tendency to meet their upper target, according to (technician) Thomas Bulkowski’s historical assessment.

What we see here is an indirect reflection of 10-year US Treasuries—not its price movements, but instead its yield. Hardcore technicians will tell you that fundamentals are priced into the patterns. Sometimes this is an accurate statement, and sometimes not. What do we see here? 

A surge in yield often means a stronger dollar. A stronger dollar tends to hurt multinationals as it makes their goods more expensive overseas. Dollar strength also helps small-caps that have a less international presence.

Are we seeing tepid risk-on sentiment, one that’s selling riskier equities for a mix of mega-caps and fixed-income?

It’s a mixed bag. So, maintain a 360-degree view, lest you risk getting T-boned by a flurry of fundamentals.

Holly Ross

Holly Ross

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