US stocks had the worst day in a month, both in terms of its losses as well as it closing price. This points to Covid and its possible effects on the recovery, an increase in bond yields, as well as China to the cause.  

It was a bumpy week as predicted with the markets looking safe on Thursday, only to give it all back and more. 

Triple witching hour, the quarterly expiration of options, and futures on Friday may have added to the volatility as well. 

According to Bloomberg, about 16 billion shares changed hands on exchanges, 60% above the three-month average, as the S&P 500 dropped almost 1%.  

Data on Friday, specifically the U.S. Consumer Sentiment,  rosed slightly in early September to 71 from 70.3 (estimate 72) but remain close to a near decade low. Buying conditions for household durables fell the worst since 1980 because of high prices. 

Consumers expect inflation to rise 4.7% over the coming year, matching the highest since 2008. 

US retail sales, however, showed a slightly different picture, rising 0.7% last month. This is excluding autos – it was up 1.8% in August, which is the largest gain in 5 months. 
The median estimate for overall sales was for a fall of 0.7%.  

Here are the closing levels on Friday: – 

This is the 2^nd consecutive weekly decline for the markets.  

S&P is now below its 50-day moving average, a technical level suggesting that things could get worse if we don’t bounce back above this level soon. 

At the end of the day, this pullback is not severe as we are just a stone’s throw away from record levels. 

It feels like it was more the fact that there was a lack of good news, more than there was bad news. 

Market fatigue, as I mentioned last week, may have also continued to affect prices. 

Putting that aside, with the fall on good volume and the 50-day moving average broken, you can expect more calls for further weakness from the bears. 

This could wash out more weak longs, investors that bought at higher levels, triggering more selling and stop losses. 

For now, it looks like the buyers that have previously come in on dips are going to take a wait-and-see attitude. 

Maybe that is what we all should do now, before rushing in on either buying or selling. 

Source: CBOE, Reuters, Bloomberg

This commentary was written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large US bank for more than 20 years.

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