A week ago, few had even heard of distressed Chinese property development giant Evergrande and now it’s the biggest headline for markets. LPL Research strategists Ryan Detrick and Jeff Buchbinder discuss if Evergrande will be another Lehman Brothers. Contagion such as that observed during the Global Financial Crisis 13 years ago is unlikely given the Chinese government’s interests and level of control, the quality of the company’s collateral, and the limited exposure to a possible default outside of China.
Ryan and Jeff also discuss this week’s Federal Reserve Bank (Fed) policy meeting. LPL Research does not expect any curve balls from the Fed but will be watching closely for clues as to the timing of interest rate hikes once bond purchases have been tapered.
LPL Research lowered its year-end forecast for the 10-year Treasury yield to 1.5-1.75% because of the economic soft patch related to the COVID-19 Delta variant and lower-than-anticipated interest rates overseas.
Finally, Ryan and Jeff point out that stocks have been due for a breather after more than doubling off the March 2020 lows, with Evergrande providing a convenient excuse. The timing should not be particularly surprising given this is a seasonally weak period of the year for stocks.
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