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“Failing to raise the debt limit would produce widespread economic catastrophe.” – Janet Yellen

Good Morning Subscriber,

After months of heat, it only seems fitting that problems are boiling to the surface just as Summer winds to a close this week.  Between FOMC tapering, slower economic data, the upcoming debt limit, and China’s Evergrande, the problems are starting to mount.  Futures opened lower last night, and originally the damage didn’t look like it was going to be too bad, but by 11 o’clock eastern time, things started to deteriorate.

The continuing collapse of Evergrande is obviously the main concern of investors around the world this morning. The fact that most of those Asian markets are closed for holidays today also makes it harder to discern what the overall impact is going to be and that only creates more uncertainty in other markets around the world that are open for trading today.

S&P 500 futures are near their lows of the morning and indicated to open down by over 1.5%, the 10-year yield is down nearly six basis points to 1.30% (it was actually lower than that last Wednesday), and the VIX is back above 25 and at its highest level since May.

Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.

The numbers below are going to look worse in a couple of hours after the US market’s open, but the table below breaks down where sectors stand after last week and heading into this morning’s decline.  Last week, both Materials and Utilities were easily the worst performers with declines of 3% or more.  As a result of those losses, the Materials sector moved into oversold territory, while Utilities isn’t far behind.  Industrials were down by only about half that much, but that was enough to put it into ‘Extreme’ oversold levels.  Along with those three sectors, the only others that were below their 50-day moving averages (DMA) as of Friday were Consumer Staples and Communication Services.  While only five sectors were below their 50-DMA as of Friday, there’s a good chance that by the end of the day today, either all or all but one of them (Consumer Discretionary) will be below their 50-DMAs.  Change has a way of coming quickly in the market.

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