Finally, the Drop is Here

The equity market fell across the board. S&P 500 broke the five-day winning streak together with the Dow and Nasdaq falling to. The Russell 2000 had a sharper fall as small caps took immense heat from the various headlines.

The Covid is Back on Surface Globally

The vaccination news was once seen as a light at the end of the tunnel. However, it appears that globally, countries are still taking strict measures to tackle the pandemic. For example, in New Zealand, there is a seven-day lockdown, and Chinese ports are facing problems with the massive shipment backlog and re-routing of routes.

It doesn’t help that the Delta variant is moving cases to record highs in 5 US states. So while we do not see the current wave as those seen in the pre-vaccine waves, there are profound impacts on individuals and companies, especially those on the services line.

Disappointing July Retail Sales

The data was a big shock. A 1.1% decline compared to a 0.3% decline expectation was a sharp miss. While it is just a one-month data, if we look at it holistically with other recent weak data, the peak growth narrative that Pika World has been speaking about appears to be on track, although we are confident of the US growth engine.

China Technology Regulation

The latest development in China over the crackdown on internet companies such as Alibaba and Baidu continued to crash Chinese counters as fear mount on the intensifying intrusion into their core business. Coupled with the weakening retail sales and industrial production in China, the market finds it hard to see Asia as a prominent driver of the global recovery narrative.

Investors are Walking away. Summer Time is here!

As discussed, the summer period often brings a weaker trading activity. In our previous discussion, we spoke about how the rotation across different indices has helped to prop up the stock market. This did not happen yesterday, as most sectors were in risk-off mode.

The S&P 500 fell in contrast to its usual resilient nature as the constant rotation often push away any selling pressure. While some buy the dip activity was seen, the elevated valuation could weaken further if investors refused to rotate to other sectors. If that holds, we could see a more prominent sell-off.