Evergrande crisis could have ‘serious spillover’: Marketgauge.com Partner

Michele Schneider, Marketgauge.com Partner and Director of Trading Research & Education, joins Yahoo Finance to discuss the moves in the market following the September FOMC meeting and Evergrande crisis, the bond market, and crypto.

Video transcript

ALEXIS CHRISTOFOROUS: Let's dig into these markets a little bit more now with Michele Schneider. She's MarketGauge.com's Partner and Director of Trading Research and Education. Michele, good to see you. Let's start with the Fed-- anything coming out of that meeting yesterday that was a surprise to you?

MICHELE SCHNEIDER: Not really, although I thought he was a little bit more hawkish than what we expected. But the way I'm really framing this is it was the classic if, and, and but. He said, if the job market stays firm, then he will start looking at the tapering. So that was a big if because, as you know, the claims actually were a little higher today, and then October we'll have our first unemployment number to take a look at.

He said and because he said, well, inflation has met our goal, so this is the right time to taper. And he's right about that. And then he also said, but, if the whole United States government defaults, there's not much we can do about it. So he kind of covered all the bases which I thought was interesting.

What's also interesting, though, is what the market is hearing today. And even though the market is up, what I'm liking here is that on the basis of the potential taper and some level of optimism, which is probably the first time I've felt it in a while, you're seeing the Russell 2000, the transportation still has a little bit of catching up to do, and the financial sector is doing better. And they all need to stay in this game and play some serious catch-up if the economy is going to improve.

ALEXIS CHRISTOFOROUS: But talk to me about what we've been seeing the past couple of days-- these really strong rallies. I mean, as you said, no big surprises here coming out of the Federal Reserve meeting-- maybe just reiterating what a lot of investors had already been thinking. And Monday, we had that big sell-off because of fears around Evergrande. If anything, the Evergrande story has gotten more dire because there's a "Wall Street Journal" report out today saying that Chinese authorities may allow that company to fail. So why isn't Wall Street reacting negatively the way it did on Monday?

MICHELE SCHNEIDER: That's a really good question, Alexis. It's certainly keeping me concerned. We actually were almost in the discretionary accounts in cash coming into today except for a few commodities because of that. So I don't think we can actually lose sight of it. You have to be somewhat nimble.

But really, I mean, I don't know what much more evidence people need to know that this could have serious spillover, because we certainly in 2008 had our own little real estate debacle that didn't turn out so well for things. And that could happen in China with spillover, number one. President Xi has already said that he doesn't really seem to be all that concerned about it. Whether or not that'll put egg on his face down the road, we don't know.

But he certainly has impacted the markets in the video gaming, in the casinos, and in the monopoly companies like Alibaba. So there's no reason for us to be complacent here, and yet, somehow, we are. Then, of course, we also have the debt ceiling-- we can talk about that too. But yeah, I'm in the camp of a little bit of the wall of worry here, and that's not my usual MO.

ALEXIS CHRISTOFOROUS: No, it is not, Michele. I know, I'm a little alarmed to hear it coming from you. So then what should individual investors be doing with their portfolio to try and sort of insulate themselves if and when Evergrande, you know, bites the dust?

MICHELE SCHNEIDER: Well, one thing that we saw on Monday that was very interesting was besides the big dive in the market was that gold actually held up. And so it's possible that gold-- everybody's been looking at it as the inflation hedge, and that really hasn't worked out too good. But what it really also is is somewhat of a safety play.

And it's so undervalued, so I would keep eyes there. It's going down, so I wouldn't necessarily try to buy the falling life. But we always have our eyes on it. The other thing is obviously you have to watch the bonds. Yes, they've come off a little bit, but if we start to see the TLTs, the long bonds, going back up, that sort of sends a signal too about the fact that people are possibly running into safety.

But we're not seeing any of that right now. So I think the best thing to do is really follow where this sector rotation is going. And those of you who don't play commodities, you should really be looking at things like wheat, and coffee, and sugar-- all of those things look like they're going to take a second leg up. And you can trade those without trading futures.

So we're really trying to encourage people to widen their horizon and somewhat have an allocation to some exposure to commodities as well. Because regardless of what happens, these are weather-related commodities-- there's already short supply of them and they can really rock it.

ALEXIS CHRISTOFOROUS: Well, they're also pretty inflation-sensitive. So how do you play commodities in a backdrop of such high inflation?

MICHELE SCHNEIDER: Well, that's the way we've been doing it. I mean, obviously, like, you could see that gold hasn't really worked out. And also, by the way, I would be careful with some of those industrial metals because if the Evergrande thing does spill over, we saw what happened to copper, and steel, and wood. They crashed because we export a lot of those materials to China-- and so does the rest of the global world.

So I would say right now, watch the dollar. FXE is something that I haven't looked at in years. That's the euro. But right now, while the dollar looks like it could be topping, that looks like it could be bottoming. And we're just being a little bit more patient here. So interestingly enough, that could be somewhat of a hedge on an inflation play. And of course, always in inflation you want to look at things like consumer staples, things that people need, they have to buy regardless of how expensive that they get.

ALEXIS CHRISTOFOROUS: Yeah, like coffee, which you just mentioned.

MICHELE SCHNEIDER: Oh yeah.

ALEXIS CHRISTOFOROUS: Speaking of hedges-- right, I know we're together on that one. Speaking of hedges, a lot of people have been using Bitcoin as a hedge, as risky as that might sound. You are actually looking for it to clear 44,500-- it's very close to that. Why do you feel that way? What's going to get us there?

MICHELE SCHNEIDER: Well, we have seen Bitcoin used as a hedge against inflation. And if you go back historically, it does outperform the S&P. Until Monday, we saw that it actually became as speculative and during the liquidity crunch went down along with the S&P. However, I do believe that Bitcoin is a good viable option-- not just Bitcoin, but some of the companies that have coin exposure-- or mining companies in particular.

We're also watching some of these mining companies-- the Bitcoin mining companies-- but also look out at some of these other coins too that look like they could take off. So yeah, 44,500 is our number right now. If the market sells off, it may also impact Bitcoin. So you do have to be careful. But you got a great wall of support here at 40,000. That's the number that has to stick. Through 44,000, 45,000, I wouldn't be surprised over the weekend to see some big move coming again.

ALEXIS CHRISTOFOROUS: Yeah, we're already at 44,200. So there you go-- on the doorstep. Michele Schneider of MarketGauge.com, thanks so much.