Why has the Dow Jones Industrial Average fallen? Blame Evergrande and the Fed.

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The Dow Jones Industrial Average rally that started on Tuesday fizzled out on the closing bell, proof that investors are still concerned about the faltering China Evergrande group and are wondering what the Federal Reserve will do next.

The Dow Jones Industrial Average lost 51 points, or 0.15%. The S&P 500 lost 0.1% and the Nasdaq Composite rose 0.2%. This came after the indices experienced gains and losses at different times during the trading session, as part of a technical picture that indicates markets are still not fully confident in the outlook for the market. Marlet. It also comes after the Dow Jones and S&P 500 fell 4.2% and 3.9%, respectively, from their all-time highs until Monday’s close.

Today’s calmer moves should not put investors at ease just yet. The Dow Jones is still below its 100-day moving average of 34,700 and horizontal support near 34,500, says Fiona Cincotta, senior financial markets analyst at City Index. These levels would have to be recovered to organize a meaningful recovery, she writes. The index is currently not even close.

The S&P 500 is trading below its 50-day moving average, raising concerns for some market techs.

In addition to concerns about Evergrande’s systemic risk throughout the financial system, investors also worry about the potential reduction in Federal Reserve stimulus measures and the risk of a prolonged period of inflation, writes. George Ball, president of Sanders Morris Harris.

Fears over China Evergrande appear to have subsided, at least for now. According to S&P Global, the Evergrande disaster is contained and does not currently require government support.

While there are several ways that the Evergrande crisis could harm the US economy or financial markets, the US, at the very least, does not have a high degree of direct exposure to the problem. None of the major US banks, JPMorgan (JPM), Citigroup (C), Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS) has more than 1.5% of its assets linked to transactions Chinese cross-border, according to analysts at Wells Fargo.

Yet it has also been our experience that risk flare ups do not usually go away overnight. We believe that stress in the capital markets could take 1 to 2 weeks to spread through the system, writes Christopher Harvey, head of equity strategy at Wells Fargo.

Investors will have to wait until Wednesday, when the vacationing Chinese stock exchanges come back online, to see the next major update. Evergrande continued its steady decline in Hong Kong, albeit more slowly, with a stock down 0.4%. Shares have fallen 84% so far this year.

Also read: China Evergrande: what is it and why are investors worried?

Meanwhile, a key meeting of the Federal Reserve’s Monetary Policy Committee (Federal Open Market Committee) begins on Tuesday. Fed Chairman Jerome Powell is due to make a statement on Wednesday and officials will also update projections for future interest rates and inflation.

Investors are watching the Fed closely for how and when the central bank will start slowing or reducing its monthly asset purchase schedule during the Covid-19 pandemic, which is adding liquidity to markets.

If the Fed implies a slowdown of more than $ 15 billion / month, a likely market reaction: not good, writes Tom Essaye, founder of Sevens Report Research.

Housing starts hit an annual rate of 1.615 million in August, up from 1.53 million in July, but single-family home construction fell 2.8% amid persistent bottlenecks.

Demand remains scorching, but builders, who were already struggling to keep up, were forced to limit production further due to various supply and labor bottlenecks, writes Amherst Pierponts Stephen Stanley. This is a recipe for relatively stable housing starts and sales, a continuing shortage of on-hand inventory and further increases in home prices.

Overseas, Tokyo’s Nikkei 225 fell 2.2%, in a late response to Monday’s action as Japanese traders returned from a holiday Monday. Hong Kong’s Hang Seng Index rose 0.6% to rebound from five-year lows seen in the previous session. The pan-European Stoxx 600 rose 1%.

Commodity prices, which also fell sharply on Monday, rebounded. Futures for the international benchmark Brent oil rose 0.2% to about $ 74 a barrel. Copper prices first rose and then ended the day largely unchanged.

Here are 12 actions in motion on Tuesday:

Universal Music Group (UMG.Netherlands), the label behind artists such as Justin Bieber, Taylor Swift and The Weeknd, has climbed more than 35% on its commercial debut in Amsterdam.

But the fortunes of UMG’s former parent company, French media giant Vivendi (VIV.France), which owns 10% of the music group’s shares, have been different. Vivendi collapses by 19% in Paris.

Warner Music Group (WMG), meanwhile, climbed 11.8% after being outperformed to Outperform Neutral at Credit Suisse.

Uber Technologies (UBER) gained 11.5% after raising its earnings forecast. Uber attributed the increase to improved mobility and delivery.

Lennar (LEN) stock fell 0.6% after the homebuilder reported earnings of $ 3.27 per share, beating estimates of $ 3.24 per share, on revenue of $ 6.9 billion, below expectations of $ 7.1 billion. The company said supply chain constraints hamper its ability to meet sales targets, a challenge that will persist for the current quarter. Still, higher prices boosted the company’s gross margin and bottom line.

Johnson & Johnson (JNJ) shares rose 0.5% after the company said its Covid-19 booster was 94% effective in the United States when given 2 months after the initial dose.

AutoZone (AZO) rose 3.8% after reporting earnings of $ 35.72 per share, beating expectations of $ 29.87 per share, on sales of $ 4.9 billion, ahead of expectations of $ 4.56 billion.

Bath & Body Works (BBWI) fell 0.1% even after upgrading to Buy from Hold at Argus.

Steven Madden (SHOO) jumped 3.6% after being upgraded to Buy from Hold at Jefferies.

Vail Resorts (MTN) rose 1.2% after being overweighted to sector weighting ahead of the release of its results on Thursday.

Royal Dutch Shell (RDS.A) rose 4%. The Anglo-Dutch oil major has announced that it will leave America’s largest oil field by selling its Permian Basin assets to ConocoPhillips for $ 9.5 billion. ConocoPhillips (COP) rose 4% in New York.

Write to Ben Levisohn at [email protected] and Jacob Sonenshine at [email protected]

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