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Markets are climbing a wall of worry from Evergrande to Delta and inflation

London (CNN Business)Global markets are rebounding from a sharp selloff on Monday, when the S&P 500 and the Nasdaq Composite logged their worst performances since May.
But to keep advancing, stocks will need to surmount a lengthening list of anxieties simmering under the surface that threaten to curtail the year's spectacular run.
"We've been in the camp that we're overdue for a correction, something in the 5-10% range that is a buyable pullback," said Cliff Hodge, chief investment officer at Cornerstone Wealth.
This may not be the week. Bespoke Investment Group has highlighted the prevalence of "turnaround Tuesdays," observing that after Monday losses of 1.5% or more, the following trading session has "much more frequently led to gains of more than 1% than losses of more than 1%."
Still, investors are keeping a watchlist of concerns. The CNN Business Fear & Greed Index was last showing a reading of "extreme fear."
Evergrande: Attention on Monday focused on Evergrande, the Chinese conglomerate battling a debt crisis. Should the company default on its massive liabilities, there are fears it could spark a "Lehman moment," in which the collapse of a single entity ricochets throughout the financial system.
There are plenty of market analysts pushing back on that narrative. They argue that the fallout is likely to remain contained, especially if Beijing steps in to cushion the blow. But with interest payments totaling more than $100 million due Thursday on two of the company's bonds, all eyes are on what happens next.
Growth: The Evergrande saga could weigh on China's property sector, a key engine of growth, at a time when the world's second largest economy is already stalling.
In the United States, meanwhile, the Delta variant of the coronavirus is hurting the recovery, despite some signs of resilience in recent data. The Back-to-Normal Index created by CNN Business and Moody's Analytics fell back to 89% as of Sept. 17 as Americans cut back on travel and dining out.
Inflation: The Organization for Economic Cooperation and Development upgraded its inflation forecast for 2021 and 2022 on Tuesday. It now predicts that consumer inflation across G20 countries will sit at 4.5% at the end of this year before easing slightly to 3.5% by the end of next year — still much higher than the long-term trend.
Supply chain problems are adding to upward pressure on prices. On Monday, FedEx (FDX) announced that it will increase its shipping rates in the new year, citing "incremental costs associated with the challenging operating environment." Businesses could pass these higher expenses along to consumers. Surging natural gas prices could also hit pocketbooks.
"Supply pressures should fade gradually, wage growth remains moderate and inflation expectations are still anchored, but near-term risks are on the upside," the OECD said in its report.
Debt debate: The United States is in a race against the clock to raise its debt ceiling, and a showdown in Congress looks imminent.
Analysts at BlackRock (BLK) told clients this week that they see a "low risk of technical default and limited chance of a temporary government shutdown." Yet they still think "the twists and turns could trigger jitters in markets that have had an extended run higher."
The Fed: The most immediate concern is the upcoming policy announcement from the Federal Reserve on Wednesday.
The meeting is expected to be a crucial indicator of how quickly the central bank plans to pull back crisis-era support for the economy. Consensus is growing that the Fed will hold off until November before announcing a taper that kicks in by year-end. Tomorrow's meeting will also include the publication of the Fed's latest economic projections, and its "dot plot," which signals when individual members expect interest rate hikes to take effect.
Sep 22, 2021 11:34
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