Unsinkable? Stocks Again Shake Off Worrisome News

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You get off a roller coaster the same place you get on, which pretty well describes the week just past.

After a nearly 2% plunge Monday, the major U.S. stock indexes ended the week at or a bit above where they had landed the previous Friday. All of which attests to the persistence of the BTFD (for “buy the dip”—you fill in the missing modifier) sentiment, despite an array of news developments that would daunt a less doughty crew. That would include the financial crisis facing

China Evergrande Group

(ticker: 3333.Hong Kong), a giant Chinese property developer in hock to the tune of $300 billion; the signaling by the Federal Reserve that it will pull back on its massive bond purchases, and a subsequent jump in yields; and Washington’s ongoing inability to craft a coherent fiscal policy and avoid a government shutdown and possible default.

To which the bulls seemed to say, “Tell me something I don’t know.”

Monday’s selloff was triggered by the climax of the long-building financial stresses facing Evergrande, which was accompanied by an avalanche of selling, even though it was apparent on reflection that this wasn’t China’s analog to the failure of Lehman Brothers, which set off the 2008-09 financial crisis.

J.P. Morgan’s crack quantitative and derivatives strategy team, led by Nikolaos Panigirtzoglou, reported that outflows from equity exchange-traded funds totaled $34 billion on Friday, Sept. 17, and this past Monday. Those were the biggest outflows since $26 billion on March 19 and $10 billion on March 22.

Based on the subsequent price action, it would appear that there was a sharp reversal Wednesday and Thursday, with money flowing back into the market, as the

S&P 500
benchmark rallied 2.2%, its best two-day showing since July 21. That helped the index end the week up 0.51%, snapping a two-week losing streak. Important to chart watchers, the S&P 500 moved back above its key 50-day moving average, below which it had dropped the previous Friday.

Yet the more significant move may have come in the bond market. The benchmark 10-year Treasury yield broke out of its recent trading range centered around 1.30%, rising to 1.46%, the highest since July 1.

Puzzlingly, most of the uptick didn’t come on Wednesday, after Fed Chairman Jerome Powell all but…