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LIVE MARKETS-Most Q4 earnings expectations are bloated -New Constructs

Tue, 11th Jan 2022 18:57

* Major U.S. indexes rebound; Nasdaq up >1%

* Energy leads S&P 500 sector gainers; utilities weakest

* Dollar down; gold, crude, bitcoin green

* U.S. 10-Year Treasury yield edges up to ~1.76%

Jan 11 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com

MOST Q4 EARNINGS EXPECTATIONS ARE BLOATED -NEW CONSTRUCTS
(1345 EST/1845 GMT)

Expectations for the fourth-quarter S&P 500 earnings
season, that essentially kicks off with major banks this Friday,
are far too bullish, according to an analysis by New Constructs
LLC.

In fact, the percentage of companies that overstate earnings
is at its highest point since 2012, the research firm said.

Wall Street analysts can ignore unusual financial gains that
pose hidden risks for investors as they are buried in the
footnotes of public company filings, New Constructs said.

Many public companies have investments in other companies
that are unrelated to their core business, but can be large
enough to affect earnings per share, the firm said in a note on
Tuesday.

These investments can distort results and the Street's
expectations for earnings, and are more noticeable during a
market downturn.

Fourth-quarter expectations for Illumina Inc,
Valero Energy Corp, Gartner Inc, News Corp
and Xcel Energy Inc are bloated, New Constructs
said.

These companies are likely to miss expectations when they
report their earnings in coming weeks, the firm said.

There are 360 S&P 500 companies with overstated earnings,
which comprise of 81% of the S&P 500's market cap, while 197
have overstated their earnings by 10%, it said.

Shares of Illumina rose more than 13% on Tuesday after the
gene-sequencing firm forecast robust revenue for 2022 and it
announced four partnership deals in news that was released after
the bell on Monday.

(Herbert Lash)

*****

UTILITIES LIGHT UP WITH A BRIGHT-GREEN HUE (1215 EST/1715
GMT)

The growth outlook for the utilities' sector remains bright
according to Saira Malik, CIO, head of global equities at
Nuveen.

As Malik sees it, valuations in the sector look attractive
even after the group's nearly 18% advance in 2021, a gain that
was its third-highest in the past decade. She says the sector is
currently priced at around a 10% discount to the S&P 500 Index,
based on estimated 2022 earnings per share.

But for Mailk, the investment potential goes beyond relative
valuations. This because she says most utility conglomerates
have streamlined their operations, "turning into pure-play
regulated utilities – which investors typically prefer due to
the stability and predictability of earnings that these
businesses offer."

Meanwhile, she believes that the landscape for capital
expenditure within the group "is as vibrant as ever," with
opportunities to invest in energy transmission, system
reliability and modernization.

However, for Malik, the most compelling rationale for the
sector may be the near across-the-board effort by its
constituent companies to reduce greenhouse gas emissions by
steadily retiring high carbon-emitting (e.g., coal-fired) power
plants and investing in green alternatives such as wind and
solar.

"These offer lower construction and operating costs while
also helping combat climate change. As renewable power plants
grow in number, so does the regulated asset base for the
companies that run them. Shareholders, in turn, should benefit
from the substantial and predictable earnings growth fueled by
this industry-wide decarbonization."

(Terence Gabriel)

*****

EUROPEAN TECH SNAPS 7-DAY LOSING STREAK (1158 EST/1658 GMT)

These days have been all about rate-hike angst and even
though Powell said the Fed would likely raise rates this year,
some confidence finally returned to markets, helping European
tech stocks rise for the first time this year.

The region's tech index stood out with a 2% bounce
that ended seven-straight negative sessions - the longest losing
streak since September - during which it lost almost 8%.

Their gains helped the pan-European STOXX 600 benchmark
rise 0.8% at the close in a broad based bounce that saw most
sectors including oil, travel and pharma positing decent gains.

(Danilo Masoni)

*****

SMALL BUSINESS SENTIMENT TURNS LESS SOUR (1055 EST/1555 GMT)
Small business owners grew a tad more sanguine last month at the
finishing line of a challenging year fraught with pandemic,
inflation and a labor drought.

The National Federation of Independent Business' (NFIB)
Optimism index edged up half a point to 98.9 in
December, with survey respondents reporting inflation is now the
biggest thorn in their sides.

"Small businesses unfortunately saw a disappointing December
jobs report, with staffing issues continuing to impact their
ability to be fully productive," writes Bill Dunkelberg, NFIB's
chief economist. "Inflation is at the highest level since the
1980s and is having an overwhelming impact on owners' ability to
manage their businesses."

Still, improved capital outlays and higher reported/expected
sales helped the headline number grow higher, as did growing
inventories - a hopeful sign that the pandemic-stricken supply
chain could be untangling (a notion supported by recent ISM PMI
data).

But the worker shortage persists, with reported compensation
and those citing labor costs as their top business problem both
rose to 48-year record highs.

"That sounds dramatic," says Ian Shepherdson, chief
economist at Pantheon Macroeconomics. "(But) it just represents
a catch-up to the surge already reported in ECI private sector
wages and salaries."

"The labor market clearly is extremely tight, but it is not
necessarily still tightening," Shepherdson adds. "The
jobs-hard-to-fill measure peaked back in September, though it
remains extremely high."

It's worth noting that the NFIB is a politically active
membership organization, and its optimism index - which hit a
post-pandemic low the month President Joe Biden was inaugurated
- still remains well below pre-COVID levels.

Wall Street traded lower as Federal Reserve Chairman Jerome
Powell took his seat at a congressional hearing, which is sure
to address rising inflation concerns as reflected in the NFIB
report.

Cyclicals and economically sensitive transports were
down the most.

(Stephen Culp)

*****

VALUE-GROWTH ROTATION BATTLE ON WALL STREET (1015 EST/1515
GMT)

Wall Street opened lower on Tuesday, but underneath, an
ongoing rotation was occurring as value stocks battled to
outperform growth shares.

Growth poster-child Information technology
accounted for the largest portion of the S&P 500's decline, with
value-oriented energy among the few sectors showing
upside.

The market is grappling with a broad-based rotation and the
potential for a hastened pace of rate hikes, which is leading to
volatility, according to Greg Marcus, managing director at UBS
Private Wealth Management in Washington.

The sector rotation presents an opportunity to reposition
and put cash to work in sectors exposed to reopening trends,
such as energy, consumer discretionary and financials, he said.

Value stocks, as measured by the S&P Value index,
have been outperforming their growth counterpart since
the end of November, and are up 7.6% versus a 2.0% decline.

Since the beginning of the year, value is up 0.7% versus a
4.3% decline in growth.

On Tuesday so far, value is now off 0.34% versus a 0.17%
decline in growth.

Here is an early snapshot:

(Herbert Lash)

*****

NASDAQ COMPOSITE: WORN TO A FRAZZLE? (0900 EST/1400 GMT)

At one point Monday, the Nasdaq Composite was down
more than 10% in just seven weeks from its late November record
intraday peak just before an upward reversal that saw the
tech-laden index close slightly higher on the day.

With this, one measure of internal strength is suggesting
the tech-laden index may be washed-out, and ripe for a bigger
recovery:

The 10-week moving average (WMA) of the Nasdaq
advance/decline (A/D) ratio, has plunged to 82%, or its
lowest level since an 81% reading in early July 2010. That 2010
low marked the end of a near 20% nine-week slide in the index.

In 2011, this measure bottomed in early September at 83%. It
then converged into the Composite's early October trough. The
IXIC fell around 7% more over the final four weeks of what would
become a 20%, 22-week decline.

Two additional near 20% sell-offs then ended in summer 2015
and early 2016, lasting five and 10 weeks, saw this measure
bottom at 88% and 87%.

More recently, after a 24%, 17-week swoon that concluded in
late December 2018, this measure bottomed at 84%. Then in early
2020, in the wake of a near-33%, five-week, collapse, this
measure became washed out at 84%.

The fact that the 10 WMA of the A/D ratio is already as low
as it is after an IXIC drop of only around 10% is a testament to
just how weak the broader Nasdaq has been. The Nasdaq daily A/D
line topped in February 2021, and ended Monday at a 16-month
low.

It now remains to be seen where the 10 WMA of the Nasdaq A/D
ratio will end the week. Of note, in 2008, in the depths of the
Great Financial Crisis, it fell as much as 68% in November,
before converging into the Composite's March 2009 low.

(Terence Gabriel)

*****

FOR TUESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT
- CLICK HERE:

(Reporting by Terence Gabriel)

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