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Market Snapshot: U.S. stocks climb higher in attempt to recover from worst day since May

U.S. stocks climbed higher Tuesday afternoon in choppy trading a day after worries about China’s indebted property company Evergrande were blamed for a global equity rout.

The Dow Jones Industrial Average

rose 75 points, or 0.2%, to nearly 34,046, after dipping into negative territory earlier in trading.

The S&P 500

climbed 14 points, or 0.3%, to about 4,372.

The Nasdaq Composite

was up 99 points, or 0.7%, at 14,813.

On Monday, the Dow fell 614 points, or 1.8%, to 33970, the S&P 500 declined 75 points, or 1.7%, and the Nasdaq Composite dropped 330 points, or 2.2%.

What’s driving markets?

Stocks were up slightly Tuesday afternoon after investors earlier tested the market’s low from the day before when concerns over the heavy debt burden of property giant China Evergrande Group

sparked a selloff.

The worries over Evergrande came at a critical juncture, with several firms having warned, correctly, that September would be bumpy for U.S. equities after a long rally to record highs during the summer.

“It’s not surprising that September brings a little volatility to the market,” Jay Pestrichelli, chief executive officer of ZEGA Financial, said in a phone interview Tuesday. He viewed the “noise” around Evergrande as a buying opportunity. “We put money to work yesterday,” he said. “We like the S&P 500.”

ZEGA had confidence to add exposure to the S&P 500 index partly because of hedging strategies that it has in place to limit losses, according to Pestrichelli. “It gives you the opportunity to be a little greedy when others are fearful,” he said.

While worries over an expected default by property developer Evergrande set the tone for weakness, the market “was just looking for a reason to pull back,” Liz Young, head of investment strategy at SoFi, told MarketWatch in a phone interview.

Stocks, as measured by major indexes, have rallied in 2021, with the S&P 500 yet to suffer a 5% pullback. Concerns about the impact of a possible Evergrande default, as well as expectations the Federal Reserve will move to begin reducing its monetary support as the U.S. economy recovers from the pandemic, and signs of peak economic and corporate earnings growth have all been cited by market watchers as factors that could contribute to at least a near-term pullback.

Young said the market is likely to see heightened volatility through the remainder of September and well into October, which would give investors holding cash the opportunity to add to market exposure through dollar-cost averaging. Over the long run, she remains constructive on cyclicals, including industrials, materials, financials and consumer discretionary.

As far as Evergrande is concerned, the selloff appeared to be “primarily driven by technical selling flows (CTAs and option hedgers) in an environment of poor liquidity, and overreaction of discretionary traders to perceived risks,” said Marko Kolanovic, chief global markets strategist at JPMorgan Chase. Kolanovic anticipates a recovery as the delta wave of coronavirus fades, and expects companies to beat expectations on third-quarter earnings.

Wall Street analysts were at pains to say that Evergrande isn’t China’s Lehman moment.

“A true ‘Lehman moment’ is a crisis of a very different magnitude,” said analysts at Barclays led by Ajay Rajadhyaksha. “One would need to see a lenders’ strike across large parts of the financial system, a sharp increase in credit distress away from the real-estate sector, and banks being unwilling to face each other in the interbank funding market. And with all that, we would also need to see massive policy mistakes on the part of Chinese authorities.”

Read: Will Evergrande be China’s ‘Lehman moment’? Wall Street says no

The Federal Reserve on Tuesday kicked off a two-day meeting that could lead to a more hawkish interest-rate forecast, while Congress has not so far increased the federal debt ceiling as it struggles to agree on a package of infrastructure spending.

The Fed has been prepping the market for a tapering of its asset purchases, according to Pestrichelli. “That just means that they’re less dovish than before, which is different from raising rates,” he said. Accelerating its timeline for rate hikes to combat inflation would “put some pressure on the market, for sure,” he said.

Even after Monday’s fireworks and losses in nine of the last 11 sessions, the S&P 500 was only 4% below its record high.

“Tapering is largely priced into markets right now,” said Jon Adams, senior investment strategist at BMO Global Asset Management, in a phone interview Tuesday. “The economy no longer needs the exceptional support the Fed has provided over the last couple of years.”

U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.62 million in August, a 3.9% increase from the previous month, the U.S. Census Bureau reported Tuesday. Compared with August 2020, housing starts were up 17.4%. The pace of permitting for new housing units also increased in August, up 6% from July and 13.5% from a year ago.

“Both housing starts and permits surprised to the upside,” said Adams. “Housing market strength may continue a bit longer than expected.”

Which companies are in focus?

Shares of Uber Technologies IncUBER rallied almost 12%, after the ride-sharing company updated its third-quarter outlook following its first months of profitability in adjusted Ebitda (earnings before interest, taxes, depreciation and amortization) in July and August.

Shares of Holdings IncBILL dropped about 5%, after the provider of software aimed at simplifying back-office operations announced the offering of $1 billion of common stock to the public and $500 million in convertible debt to qualified institutional investors.

Transfix Inc., a digital freight platform, said Tuesday it is going public by merging with special-purpose acquisition corporation G Squared Ascend GSQD, +1.55% in a deal with a pro forma enterprise value of $1.1 billion.

Shares of Activision Blizzard Inc. ATVI were off about 3% after the company said it was continuing to address and resolve workplace complaints as it cooperates with a Securities and Exchange Commission investigation into disclosures on employment matters.

How are other assets trading?

The yield on the 10-year Treasury note TMUBMUSD10Y was little changed at 1.32% after the benchmark yield on Monday saw its biggest rise since Aug. 13, according to Dow Jones Market Data. Yields and debt prices move in opposite directions.

The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six rivals, was down less than 0.1%.

Oil futures were up slightly, with the U.S. benchmark CL00 rising 0.3% to $70.51 a barrel. Gold futures GC00 rose, settling 0.8% higher at $1,778.20 an ounce.

In Asia, Hong Kong’s Hang Seng

managed a 0.5% advance after Monday’s 3.3% rout, while the Nikkei 225

slumped 2.2% in Tokyo after a holiday. Chinese markets remain closed until Wednesday.

Markets in Europe saw gains, with the Stoxx Europe 600

rising 1% and London’s FTSE 100

climbing 1.1%.

—Steve Goldstein contributed to this report

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