Market & Economic Recap

A roller coaster week. All markets tumbled on Thursday, followed by Dow and S&P 500 creating new highs on Friday. While the markets have seen low volatility for a while, this week hints that hiking volatility may come.

The current markets heavily depend on Federal Reserve stimulus that any attempt to unwind the extra money supply would lead to a frantic market pullback. The pullbacks earlier this year were caused by fears of too much inflation, and the pullbacks this week was caused by fears of too little. The June Fed Minutes turned dovish, citing that the “Standard of subnational progress in the economy has not been met”. The dovish suppressed the surging interesting rates and US dollar index.

The fight between China and the United States seems to resume. China steps up a war against US-listed Chinese companies and promises a new raft of stringent regulations. On the other hand, the Biden administration rejected student visas for more than 500 Chinese students to study at American universities as tensions prevail between the two countries. Chinese markets fall sharply this week, although the U.S. markets were intact. We hope the political fight does not turn into an economic war that will hurt all the economies across the globe.

Credit Spreads Screening

The release of 2021 Q2 earnings has started. As you know, thanks to the COVID relief bill and economies reopen in Q2, the spending wave was up in Q2. We would expect positive earnings reports from most companies.  However, economic indicators to be released in 2021 Q3 have a higher basis (i.e., 2020 Q3) than in 2021 Q2 whose basis (i.e., 2020 Q2) was almost the worst in history due to COVID. The mixture of good and bad news leads to higher volatility, where credit spreads traders for income can benefit from collecting more premiums. 

In terms of this week’s market condition, we used the high volatility settings to scan the conforming credit spreads. Premier Members can view the screening reports of conforming credit spreads, and others can join us to test-drive free for 30 days.