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State of the Markets: The worst day of the year

It felt like it had been coming for quite some time, but yesterday's selling spree was still surprising given the sheer severity of declines across major indices despite the lack of an “event,” so to speak. Another destructive session in Chinese markets sent U.S. equities lower at the opening bell, as the global risk-off trade that has been a driver recently continued to weigh on stocks. Though the Philly Fed and Existing Home Sales reports came in above expectations, the theme of the day had already been decided early on.

Stocks took another blow after appearing to stabilize following the announcement that Greek Prime Minister Tsipras had tendered his resignation and called for snap elections. A snap election should allow Tsipras to capitalize on his popularity and return to power in a stronger position than before. While it was not a wholly unexpected move, most did not believe it would come so early. Stocks never recovered, and closed at their worst levels of the day. The S&P 500 posted its worst session in 2015, finishing down nearly 44 points.

This morning, it looks like a whole lot more of the same. Futures are down big across the board following another sharp sell-off in Asian markets due to a weak China PMI. The Caixin Manufacturing PMI fell to 47.1 from 47.8, which was below expectations for 48.2 and showed deterioration in all five components on a sequential basis. Shanghai finished down -4.21%, while Japan was down -2.98%. European markets have followed suite, with Germany down -1.36% and the U.K. -1.45%.

So, it looks to be another torrid start for the bears here in the U.S. Yesterday was technically the worst day of the year. But what's stopping today from being worse? The drivers are all the same. All major indices have smashed through any semblance of intermediate-term support, and are sitting in something of a technical no-man's-land for the time being. A rally at the 2040 area on the S&P 500 would have been a big save for the bulls, but they lost that battle late yesterday, and the damage will be compounded this morning as we follow China lower.

As I wrote yesterday – China remains the focus. And it will remain the focus until the environment shifts, or something else significant happens to distract us from the country's currency devaluation, tanking markets, and poor economic data. Stay tuned…

Publishing Note: I will be traveling in Europe for the next couple weeks as my wife and I celebrate our 35th wedding anniversary. As you might suspect, morning reports are likely to be sparse between now and Labor Day.

David Moenning is Chief Investment Officer at Heritage Capital Management, a Chicago-based registered investment advisory firm. Mr. Moenning began his investment career in 1980 and formed Heritage Capital in 1989. Dave’s firm focuses on “active management” and focuses on managing market risk on a daily basis. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Mr. Moenning is the 2013-14 President of NAAIM (National Association of Active Investment Managers) an organization dedicated to active management strategies. Follow Dave on Twitter at @StateDave.

Dave Moenning

David Moenning is Chief Investment Officer at Heritage Capital Management, a Chicago-based registered investment advisory firm. Mr. Moenning began his investment career in 1980 and formed Heritage Capital in 1989. Dave’s firm focuses on “active management” and focuses on managing market risk on a daily basis. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Mr. Moenning is the 2013-14 President of NAAIM (National Association of Active Investment Managers) an organization dedicated to active management strategies. Follow Dave on Twitter at @StateDave.