Buying the dip

The dip-buyers who stepped in during the last hour of Wall Street trading yesterday are back again today, pushing stocks higher around the world. S&P futures (SPX), Nasdaq 100 futures (NDX:IND) and Dow Jones futures (INDU) are all up about 1%.

In Asia, Japan's NIKKEI (NKY:IND) is lower, catching up with trading after a holiday on Monday, but Hong Kong's Hang Seng (HSI) is up more than half a percent. In Europe, the benchmark indexes in Frankfurt, London and Paris are more than 1% higher, with the broader STOXX 600 (STOXX) up 1%.

Rates are paring losses, with the 10-year Treasury yield (NYSEARCA:TBT) (NASDAQ:TLT) up 3 basis points to 1.34%. And volatility is ebbing. The S&P VIX Index (VIX), also referred to as the fear gauge, is down 12% after a surge yesterday. The VIX "traded north of 25 for the first time since May, a rise which is likely to have exacerbated some of the declines, with risk models forcing positions to be trimmed as volatility climbs, thus increasing selling, fueling a further increase in volatility; and so on, and so forth," Michael Brown, senior market analyst at Caxton writes.

No Lehman moment: Jitters about the impact of China's Evergrande defaulting on interest payments have eased overnight. S&P Global Ratings says that a government bailout is unlikely unless there is systemic risk and "far-reaching" contagion from Evergrande. But the S&P analysts also say the property company "failing alone would unlikely result in such a scenario."

"The crisis at Evergrande and in the Chinese real estate sector was the catalyst (for a selloff) most people were talking about, but truth be told, the market rout we’re seeing is reflecting a wider set of risks than just Chinese property, and comes after increasing questions have been asked about whether current valuations could still be justified, with talk of a potential correction picking up," Deutsche Bank strategist Jim Reid writes today. "Remember that 68% of respondents to my survey last week thought there would be at least a 5% correction in equity markets before year end. So this has been front and center of people’s mind even if the catalyst hasn’t been clear," he adds.

Time to buy?: Monday's tumble brought some bullish calls from Wall Street banks, where several strategists still see the path of the broader market moving up and to the right.

"The market sell-off that escalated overnight we believe is primarily driven by technical selling flows (CTAs and option hedgers) in an environment of poor liquidity, and overreaction of discretionary traders to perceived risks,” Marko Kolanovic, chief global market strategist at JPMorgan, wrote in a note yesterday. “Our fundamental thesis remains unchanged, and we see the sell-off as an opportunity to buy the dip.”

From a technical perspective, Piper Sandler strategist Craig W. Johnson called this week a "key test for the buy the dip crowd" and that a failure to defend the S&P's 50-day moving average around 4,436 "would suggest the broader market is at risk for a deeper pullback." But Thomas Lee, head of research at Fundstrat, agreed with Kolanovic, saying on CNBC the time was right to look at adding to positions. "I would look at selloffs like this, which is sort of broad-based selling, as a time to add incrementally," Lee said. (9 comments)

Evergrande bailout unlikely

Evergrande (OTCPK:EGRNF, OTCPK:EGRNY) is looking at default as interest payments loom, with direct assistance from the government unlikely, S&P Global Ratings says.

“We believe Beijing would only be compelled to step in if there is a far-reaching contagion causing multiple major developers to fail and posing systemic risks to the economy,” S&P analysts wrote in a note yesterday. “Evergrande failing alone would unlikely result in such a scenario,” S&P added. (7 comments)

Consumer wall of worry

Consumer stocks tumbled along with the rest of the market yesterday on broad concerns over what the China property market debacle signals for riskier assets and increased apprehension on the U.S. debt ceiling negotiations between Democrats and Republicans in D.C.

The topper could be the FOMC meeting in a few days during which a sharp focus will be on tapering wording.

Analysts are pointing out that the nervous trading has been building with the Dow down for three straight weeks, which has not happened since September of 2020. (10 comments)

Robinhood crypto wallet

Robinhood (NASDAQ:HOOD) is testing a cryptocurrency wallet feature on a beta version of its iPhone app so users can transact with digital currencies without having to convert them to dollars, Bloomberg reports.

The software includes a hidden image showing a waitlist page for users signing up for the new feature. The app also has a code referring to crypto transfers. Bloomberg notes that crypto wallets also provide a single place for users to store their crypto, protected by a private key. (3 comments)

Apple expectations

We're fresh off the details of the newest iPhone 13 (NASDAQ:AAPL), but TF International/KGI analyst Ming-Chi Kuo is already setting expectations with predictions for the iPhone 14, including a new hole-punch camera design to replace the noted Apple notch.

"Hardware selling points for 2022 iPhones include (1) a new iPhone SE with 5G support (1H22), (2) a new and more affordable 6.7" iPhone (2H22), and (3) two new high-end models equipped with a punch-hole display (replacing the notch area design) and a 48MP wide camera (2H22)," Kuo says.

Those top-end iPhone 14s are expected to come in 6.1-inch and 6.7-inch screen sizes and drawing conclusions from the current lineup points to a four-model matrix: iPhone 14 and iPhone 14 Max, and iPhone 14 Pro and iPhone 14 Pro Max, with the Pro models switching to the new hole-punch camera design. (20 comments)

Kids vaccine

Based on the new data released by Pfizer (NYSE:PFE) and BioNTech (NASDAQ:BNTX) in kids, President Joe Biden’s chief medical adviser Dr. Anthony Fauci said that a COVID-19 vaccine for children ages 5 to 11 will likely be available before Halloween.

“There’s a really good chance it will be” available before the Oct. 31 holiday, Fauci said during an interview on MSNBC. He also said he would be in favor of schools mandating shots for kids once they are fully approved. (8 comments)

Today's Markets

In Asia, Japan -2.2%. Hong Kong +0.55%. China +0.2%. India +0.45%.
In Europe, at midday, London +1.07%. Paris +1.40%. Frankfurt +1.44%.
Futures at 6:20, Dow +1.1%. S&P +1.1%. Nasdaq +0.98%. Crude +1.47% at $71.17. Gold +0.03% at $1764. Bitcoin -3.9% at $43334.
Ten-year Treasury Yield +2.5 bps to 1.334%

Today's Economic Calendar

FOMC meeting begins
8:30 Housing Starts and Permits
8:30 Current Account
8:55 Redbook Chain Store Sales
1:00 PM Results of $24B, 20-Year Bond Auction

Companies reporting earnings today »

What else is happening...

Lennar (LEN, LEN.B) dips following revenue miss, supply chain challenges.

Electric vehicle stocks hammered amid China woes but Lucid (NASDAQ:LCID), Electric Last Mile (NASDAQ:ELMS) and Li-Cycle (NYSE:LICY) stand tall.

India to receive first J&J (NYSE:JNJ) COVID-19 vaccine doses in October.

Shell (RDS.A, RDS.B) confirms sale of Permian Basin assets to ConocoPhillips (NYSE:COP) for $9.5B.

Early iPhone 13 pre-orders seen as solid ahead of Friday's official release.

Peloton (NASDAQ:PTON) turning to hotel chains, commercial businesses in push for growth.

Michael Jordan increases investment in Sportradar (NASDAQ:SRAD), assumes special advisor role.

Activision Blizzard (NASDAQ:ATVI) dips on report SEC opens wide probe into practices.