MACM Portfolios and Equity Indices descend a bit further on China Uncertainty and Tame Economic Data

By Mitchell Anthony

September 20th, 2021


The equity market’s results last week were mixed as soft but tame economic data combined with further regulatory talk by Chinese officials brought concern to the US markets.  Investors seem to forget occasionally that soft economic data is much better than strong economic data.   The equity markets in America are highly valued and some say ripe for a correction given the right economic event.  Thus far the economic environment has been benign with very accommodative central bank policy and an outlook for modest to moderate economic growth.  The inflation numbers were a bit hot but now are calming just as the Fed had predicted.  This is nirvana for equity markets.  As a result we have highly valued markets that are likely to stay highly valued and tilt higher until the economy stumbles badly.

As investors worry the markets have moved sideways to slightly lower over the last few weeks.  MACM’s DG portfolio lost 1.1% last week compared to declines of 0.8% for the S&P 500 (SPX) and 1% for Russell’s large-cap value index (IWD).  MACM lost 30 basis points of alpha last week mostly due to softness in casino stocks as well as our Chinese position.  Both of these areas were highly impacted by further comments from the ruling party about how the government might implement changes in the regulatory environment in Macau.  Las Vegas Sands LVS declined 11% and Wynn fell 19.5%.  Chinese tech and consumer indices declined 3 to 4%.  CHIQ -3.6% and CQQQ -4.3%.   The FAANG did better than the general market last week adding alpha to the DG portfolio with  FB down 3.1%, AMZN up .15%, APPLE down 2.33%, NFLX up .01%, and GOOGL down 1.08%.  The Tech heavy Nasdaq QQQ declined -0.7%.


  • Average Hourly earnings YOY declined 0.9% vs a bigger decline of 1.2% reported in the prior period.
  • CPI was reported on Tuesday and the data was mostly benign with actual month over month inflation of 0.1% compared with an estimate of .3% and a reading of .5% for the prior month.  Year-over-year CPI came in at 5.3% versus estimate of 5.5% and the prior reading of 5.4%
  • Capacity utilization for the most part was right on estimates with a reading of 76.4% versus estimates of 76.1%.
  • Retail sales data came in on Thursday and was a modest surprise with a .7% gain from the prior month versus the estimate for a decline of .7% and a decline of 1.1% in the prior month.

The central bank was again quiet.  The 10 year treasury which has been range bound between 1.2% and 1.4% for several months, finished the week at 1.35%.


This week’s economic calendar has quite a bit of relevant economic data. Tomorrow we get housing starts and permits which are estimated to be 1.55 million, and 1.6 million, which would be a modest uptick from the prior readings. On Wednesday we get existing home sales with expectations for 5.88 million sales almost identical to the previous month.  On Friday we get new home sales with estimates looking for 711,000 versus the prior periods 708,000. The Federal Reserve is set to conclude its next policy meeting on Wednesday, although it’s unlikely there is any surprise in their policy trajectory.

China will likely be in the news about its desire to further shape its plans on how it will become an economic superpower and may offer even more commentary from Xi this week on his ever changing views for capitalism and socialism in China.  The recent news from China involves their problems with highly leveraged real estate developers.  This problem seems unique to China but the size and scale of the problem is notable. Evergrande a Chinese real estate development firm of substantial size and scale blew-up and is essentially bankrupt after commentary from the Chinese government about their desire to contain over-leverage in their real estate sector. This blowup in China, while likely painful for many in that region, seems unlikely to have any significant global or US repercussions. American real estate development firms have not shown signs of being overleveraged and in fact have been slow to embrace aggressive development during this Covid 19 environment.

The economic event that could bring about a 10 to 20% correction in the American equity markets would seem to involve some sort of serious stumble by the American economy.  Currently expectations are quite high for above trend growth.  This growth is not materializing but doesn’t seem problematic for the outlook for the financial markets. Slower growth has always been better than fast growth for financial markets.

Equity market performance this week will also be a notable item as volatility has been returning a bit over the last several weeks and investors are facing the September and October months which historically have been difficult for markets and have produced bad economic data points. Will the markets find a quick bottom here or tilt a bit lower?