US weekly: S&P 500 recovers as investors cheer Fed’s move

US indices started off the week with a broad sell-off on Monday as fear over potential collapse of China’s Evergrande dented investor sentiments. The S&P 500 Index recorded its biggest daily drop since May 12 and briefly dipped below its 100-day moving average.

US stocks ended lower on Tuesday as fear over Evergrande crisis kept investors skeptical. Prospects of tighter Monetary Policy and Delta-variant led economic slowdown weighed on investor sentiment. Meanwhile, the US current account deficit rose 0.5% to a 14 year high of 190.3 billion in the second quarter due to heavy imports and robust consumer spending.

The US indices rallied on Wednesday after the Fed continued its monetary stimulus supporting the economy. If economic progress continues then moderation in pace of asset purchase may soon be warranted. Short term rates were kept near zero by the Fed Open Market Committee.

The US stocks rallied on Thursday as investors weighed the minimal impact of Evergrande crisis on global markets and continued ultra easy monetary policy. Initial weekly jobless claims rose to 3,51,000 indicating that delta variant may be disturbing the job market recovery.

The major benchmarks overcame an early sell-off to end the week flat to modestly higher. Longer-term bond yields rose sharply over the week, helping financials shares. Energy stocks also outperformed within the S&P 500, while utilities shares lagged. For the week, Dow Jones gained 0.6%. 

Weekly market stats with IND

Let’s see the major developments during the week:

Fed open market committee: Federal Reserve Chair Jerome Powell said the U.S. central bank could begin scaling back asset purchases in November and complete the process by mid-2022. Powell also said he didn’t expect the Fed to begin rate increases until after completing the taper process. The benchmark 10-year Treasury yield rose to the highest rate since early July, as the Fed signaled that tapering of the bank's bond purchases is round the corner (likely to be announced at the November meeting and concluded by mid-2022)

Evergrande crisis:  Evergrande, China's second largest real estate developer, was caught in the spotlight when the news broke out about its chances of defaulting on its upcoming debt payment of $83.5 million on Sep 23 (Thursday). Evergrande accumulated a debt of $300 billion as it went on a debt-fueled expansion over the years. However, property sales have been declining for months, constraining its cash flow further. Evergrande was also caught out by new borrowing limits that China’s regulators imposed on real estate-related borrowing. Being unable to borrow more via bonds, the company’s liquidity position further got worse.

Delta variant remains a concern: The spread of the delta variant appears to have dented consumer confidence and disrupted the momentum in job growth. An average of roughly 1.4 lakh coronavirus cases has been reported each day in the United States while the total cases have crossed the 42.8 million mark. To battle this, the pace of vaccination has also picked up. About 55% of the eligible American population (age 12 and over) are fully vaccinated and over  64.8% have received the first dose.

Oil prices at one-month high: Oil prices rose for a third week in a row to a near three-year high on Friday as global output disruptions have forced energy companies to pull large amounts of crude out of inventories. The rally was slightly dampened by China's first public sale of state crude reserves. Some members of the OPEC+ have struggled to raise output due to under-investment or maintenance delays during the pandemic.