* DJI closes on red-side of flat, S&P 500 dips, Nasdaq falls
~1%
* Banks surge, chips plunge
* Cons disc weakest major S&P sector; energy leads gainers
* Dollar, crude, bitcoin down; gold up
* U.S. 10-Year Treasury yield last at ~1.77%, earlier hit
1.801%,
its highest since Jan 2020,
Jan 7 - 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
NASDAQ HAS ROUGH WEEK AS VALUE CRUSHES GROWTH (1603 EST/2103
GMT)
The Nasdaq Composite ended lower for a
fourth-straight session on Friday as technology and growth
shares remain on the back foot as investors continue to worry
about the U.S. interest rate outlook even after a
weaker-than-expected December payrolls report.
Indeed, the U.S. 10-Year Treasury yield at one
point hit 1.8010%, or its highest level since January 2020. The
yield has now risen six-straight days which is its longest run
since another six-day streak in January 2021.
With the recent thrust higher in yields, tech had
its biggest weekly percentage drop since October 2020, while
financials had their best week since February 2021.
As a result, value crushed growth. The
value/growth ratio had its biggest weekly rise since November
2000!
Of note, the last time the 10-year yield rose more than six
days in a row was an eight-day streak in April 2018. So this
market may be getting stretched to the upside, while traders are
noting resistance at 1.87%.
For the week, the tech-laden Nasdaq tumbled 4.5%,
which was its biggest slide since February of last year. The S&P
500 lost 1.9%. The Dow slipped just 0.3%.
Here is Friday's closing snapshot:
(Terence Gabriel)
*****
A CLOUDY READING FOR JANUARY TEA LEAVES (1410 EDT/1910 GMT)
While many investors depend on old-fashioned fundamentals
-earnings reports and economic data - some also keep a close
watch on the wisdom found in the Stock Trader's Almanac https://www.stocktradersalmanac.com.
The Almanac finds that past market patterns tend to repeat
themselves a lot, except of course when they don't.
With this in mind, the "Santa Claus Rally" and the
full-month "January Barometer" indicators, invented by the late
Almanac founder Yale Hirsch in 1972 were combined with the
"First Five Days Early Warning System" in 2013 to create the
"January Indicator Trifecta."
The trifecta is at its best, when all three indicators
agree. And when that's the case, it may be prudent to listen,
wrote Almanac editor Jeffrey Hirsch in a blog post this week.
But this year is already messy. The Santa Claus rally did
materialize with the S&P rising 1.4% from Dec. 27 to Jan. 4.
However, the first five days has been dragging in the
opposite direction. The S&P is last set for its fifth straight
day of declines and on track for a weekly loss of 1.7%, thanks
to today's payrolls and Wednesday's Federal Reserve minutes!
Another wrinkle with the early warning system is the fact
that U.S. mid-term elections happen in 2022. In mid-term years,
you see, the reliability of this indicator fades. In the last 18
mid-term years, only 8 full years followed the first five days'
direction.
The full-month January Barometer has a slightly better
midterm election year record with 10 of the last 18 full years
following January. However, on Jan 7, it's a tad early to call.
When all three indicators have pointed higher, the S&P 500
rose 90% of the time, or 28 out of 31 years, with an average
gain of 17.5%, wrote Hirsch. But when any fall, it's murkier.
"When all three are down or, the Santa Claus rally is up and
the other two are down it's discouraging," said Hirsch in a
phone call on Friday.
Going back to 1950, in the years when Santa rallied but the
other two indicators were negative, the S&P tended to decline
for the year with an average loss of 9.4%.
But in the six years when Santa rallied and the first five
days fell, but January was positive, the S&P gained five times
with the only loss occurring in 2001, a year that included all
sorts of unusual occurrences.
So maybe its best to focus on fundamentals this year?
Hirsch had this warning: "You don't base your investor
decisions on one indicator or the trifecta. You also have to
look at things like seasonality, fundamentals, technicals, and
monetary policy as well as market sentiment."
Still, for fun you could also read the 2022 edition of The
Genuine Irish Old Moore’s Almanac https://oldmooresalmanac.com/product/buy-the-2022-old-moores-almanac.
After all, their in-house psychic already predicted Bitcoin's
rise and the pandemic and is now foretelling two new crypto
coins, according to a teaser on the website.
(Sinéad Carew)
*****
FOR INDIVIDUAL INVESTORS, 2022 LOOKS TO BE BULLISH (1330
EDT/1830 GMT)
As part of the most recent American Association of
Individual Investors (AAII) Sentiment Survey, AAII
asked its members how big of a percentage gain or loss the S&P
500 index will realize in 2022.
AAII reported that nearly two-thirds of respondents (66%)
expect to see returns greater than 2%, with 43% expecting to see
returns between 6% and 15% for the year.
Against this, about 26% of respondents expect to see
negative returns greater than 2%, with 19% predicting losses
greater than 10%. Roughly 8% of respondents predict that the
returns will be flat for 2022 (between –1% and 1%).
Here are a couple of quotes from investors on the matter:
"I think the S&P 500 will be up over 10% this year as
current fears about inflation, the coronavirus and the midterm
elections fade during the year."
"The Fed tapering and raising rates three times in 2022 will
cause the S&P 500 to lose about 5% to 10%."
(Terence Gabriel)
*****
U.S. BANKS BOUND HIGHER, REACH RECORD (1307 EST/1807 GMT)
The S&P 500 banks index has been on fire this week
, and has reached a record intraday
high on Friday. It is last up 1.5% on the day, and on track for
a more than 9% gain for the week. A finish above 453.25 will set
a new closing high as well.
Bank shares have been helped by a recent surge in U.S.
Treasury yields as investors brace for the potential for
earlier-than-expected interest rate hikes from the Federal
Reserve.
The weekly gain would be the index's biggest percentage
weekly increase since November 2020.
The S&P 500 financial sector has also hit new
records this week, including an intraday record on Friday.
Higher interest rates typically allow banks to increase
their profit margin.
(Caroline Valetkevitch)
*****
DON'T BLAME MEGA CAPS IF RETURNS SUCKED LAST YEAR (1252
EST/1752 GMT)
Both long-only and long-short active managers underperformed
last year, but those pointing to the market's concentration in
mega-cap tech stocks isn't the reason, as holdings in non-U.S.
and small-cap stocks most likely spoiled their returns.
While out-of-benchmark positions are a benefit when they
outperform, they were significant detractors in 2021, an
analysis by Jonathan Golub, chief U.S. equity strategist at
Credit Suisse, showed on Friday.
Under- or out-performance in a given period is due to a
portfolio manager's dual objectives of beating their respective
benchmarks and peers, while mitigating downside risk, he said.
To generate alpha, managers often identify opportunities
outside of their benchmarks, with about 20% of large-cap fund
holdings in non-U.S. and small-cap stocks, Golub said in a note.
The data supports what active managers often say: they lag
when markets are robust and outperform in weak or down markets,
he said. Whether a drag from cash holdings or simply lower Beta,
periods of above-average returns are difficult for managers,
while low interest rates exacerbated last year's performance.
Mega-cap tech stocks and the S&P 500 equal weight index
performed roughly in line with the benchmark S&P 500 last
year, he said. The S&P 500 returned 28.7% last year, while mega
cap tech returned 30.0% and the equal weight S&P 500 29.6%.
The small-cap Russell 2000 index returned 14.8% last
year, while MSCI's World ex-USA Index returned 13.17%.
The performance of Apple Inc, Google-parent
Alphabet Inc, Microsoft Corp, Meta Platforms
Inc and Amazon.com Inc represented mega-cap
tech.
(Herbert Lash)
*****
WRAPPED UP IN CHAINS: SUPPLY CONSTRAINTS PERSIST, BUT COULD
BE EASING (1235 EST/1735 GMT)
Supply chain woes, which have hindered economic recovery
from the global health crisis and driven prices to the
stratosphere amid a demand boom, appear to be on the wane.
But appearances can be deceiving.
Oxford Economics' (OE) most recent Supply Chain Stress
Tracker, which aggregates five metrics - activity,
transportation, prices, inventory and labor - suggests the
picture modestly improved in the last weeks of 2021.
While the easing of supply chain stress was driven by
improved surface transportation and inventory readings, "on the
activity, price, and labor fronts, stress rose," writes Oren
Klachkin, lead U.S. economist at OE.
Furthermore, the stubborn persistence of the pandemic
remains a threat.
"The Omicron variant threatens to jam the economy's gears,
intensifying already severe supply-chain problems," Klachkin
adds.
Regarding prices, "the inflation rate of raw materials for
durables manufacturing likely reached a new high in December, up
roughly 60% y/y," the note reads.
Heightened capacity utilization combined with strong
shipments and new orders point to growing stress in the activity
tracker, while slower jobs creation, near-record openings and
rising wages continue to reflect a tough hiring environment.
Despite improvement in the transportation component, "the
reality is that congestion has not substantially eased,"
Klachkin says.
And finally, while inventories showed some encouraging
growth, they remain lean relative to strong demand.
"Firms are also stocking up to lower the risk of future
disruptions," according to the note.
The graphic below, courtesy of OE, shows a 24-month history
of the Supply Chain Stress Tracker, broken down by contributors:
(Stephen Culp)
*****
CME TO ANNOUNCE PROGRESS ON POSSIBLE 20-YEAR BOND FUTURE ON
MONDAY (1210 EST/1710 GMT)
The CME Group is planning to make an announcement on
Monday that will give market participants more insight into the
progress of its possible launch of a 20-year Treasury bond
future.
The 20-year Treasury bond, which was
reintroduced in 2020 for the first time since 1986, has
struggled to generate as much investor interest as other issues.
A 20-year bond future could boost demand for the maturity by
offering investors an easier way to hedge the debt, or to
speculate on its future yield moves.
The CME has designed three prototypes for a potential
20-year Treasury futures contract and consulted with clients
about these options. On Monday it will announce a decision based
on this process, it has said.
The U.S. Treasury Department has said that it will reduce
auction sizes of seven-year and 20-year bonds more than other
maturities to address supply and demand dynamics of the
Treasuries, after issuance was ramped up in 2020 to pay for
COVID-related spending.
(Karen Brettell)
*****
EUROPE: A STELLAR WEEK FOR THE REFLATION TRADE (1152
EST/1652 GMT)
While the year began with a flurry of record highs and three
straight sessions of gains for the pan-European STOXX 600, it
ends with an underwhelming 0.3% weekly loss for European
equities.
That said, the benchmark doesn't tell much of the big story
that brewed all week below the surface.
Truth be said, these five first days of trading of 2022 must
have been exhilarating for those investors who decided to place
their bets on the reflation trade.
The banking index is up a handsome 6.7% and has reached its
highest level since 2018 as bond yields kept marching up on both
sides of the Atlantic to the tune of faster-than-expected Fed
rate hike speculation.
On that note, data showed today that inflation jumped to a
historic high of 5% in the euro zone.
The upward trend in yields has also provided a boost for
European insurers which are up 4.4% this week.
Among the usual suspects which thrive when prices go up,
miners and the oil & gas sector jumped 5.5% and 4.4%
respectively.
By the same token, European tech was the big loser as
investors are usually reluctant to pay big equity premiums for
growth stocks when interest rates and inflation move up.
The biggest surprise perhaps of early 2022 was the frenzy
surrounding auto stocks.
While much of the credit for the hype for the sector goes to
U.S. firms such as Ford or GM, the European index jumped about
6.5% with carmakers such as France's Renault or Germany's
Daimler gaining 11% and 9% respectively.
Finally, the fact that Travel & Leisure stocks pulled off a
weekly gain of 1.7% while COVID-19 infections hit record highs
across Europe suggests investors are confident that stringent
lockdowns are likely to be avoided this winter.
(Julien Ponthus)
*****
THIS IS THE WAY 2021 ENDS, NOT WITH A BANG BUT A WHIMPER: A
JOBS REPORT DEEP DIVE (1114 EST/1614 GMT)
The labor market trudged across the finish line of a
remarkable year for jobs growth, with the Labor Department's
final employment report of 2021 delivering a disappointing
headline number and a mixed bag of data.
The U.S. economy added 199,000 jobs in the final month of
2021, less than half the 400,000 expected, in a
sign that the worker drought remains a persistent weight on the
labor market.
"The topline number is a disappointment, and it looks as
though (COVID) has had an impact," says Peter Cardillo, chief
market economist at Spartan Capital Securities.
The number represents a 20% drop from November's upwardly
revised 249,000, and means the economy has yet to recover 3.6
million jobs from the 22.4 million that evaporated seemingly
overnight when COVID struck nearly two years ago.
Tallied together, nonfarm payrolls grew by 6.5 million last
year. "In percent terms it was the best year for job gains since
the late 1970s," tweeted Heather Long of the Washington Post.
The number - the lowest of 2021 - also caps a tumultuous
twelve months, the second year of a global pandemic, and marks
the fourth month in 2021 where the headline payrolls number fell
short of consensus by 200,000 or more.
Including revisions, had the headline nailed consensus every
month last year, nonfarm payrolls would be 257,000 jobs richer.
The graphic below shows 2021's headline job adds, along with
the size of each month's upside/downside surprise:
"It's a really disappointing data point given how many fewer
jobs were added than expected," writes Chris Zaccarelli, chief
investment officer at Independent Advisor Alliance. "But the
other headline number (e.g., the unemployment rate) dropped to
3.9% signaling that we are getting a lot closer to full
employment."
Indeed, the unemployment rate posted a
bigger-than-anticipated drop, shedding 30 basis points to 3.9%.
That would appear to be a signal that 'full employment,' the
Federal Reserve's condition for tightening its easy,
pandemic-era monetary policy, is close to being met.
But broken down by duration, the drop appears to have been
driven by the longer-term jobless.
The share of total unemployed workers who have been jobless
fewer than five weeks and five to 14 weeks both inched higher,
to 31.2% and 24.8%, respectively, while the longer-term slice of
the pie grew smaller.
This could be indicative that even as the impact of the
fast-spreading Omicron COVID variant is beginning to felt in the
jobs market, that impact is being offset by long-term unemployed
workers either landing gigs or running out of benefits.
The drop in the unemployment rate is particularly heartening
considering the labor market participation rate, which held
steady at an upwardly-revised 61.9%.
When a worker leaves the labor force, whether to due to
retirement, stay-at-home parenting or discouragement over job
prospects, they are no longer counted in the data.
So while the participation rate remains well below
pre-pandemic levels, its slow upward trend, combined with the
downward trend of the unemployment rate, paint a picture of a
labor market recovering its equanimity.
On the downside, wage growth - perhaps the most
closely-watched non-headline number this go-around - was
significantly hotter than expected, jumping 0.6% last month and
rising 4.7% year-over-year.
While this was cooler than November's upwardly-revised 5.1%
annual growth, the number remains too hot for the Fed to
consider tamping down its recent pivot to hawkishness, and if
anything increases the likelihood of even more than three
interest rate hikes in 2022.
"Hourly wages are not coming down, which suggests the Fed is
not likely to be derailed by this headline number," Cardillo
adds.
The graphic below shows wage growth along with other
indicators, all of which continue to soar well above the Fed's
average annual 2% inflation target.
On another sour note: the racial/ethnic unemployment gap
widened.
Joblessness among White, Asian and Latino Americans all
inched lower, but Black unemployment actually increased, gaining
0.6 percentage points to 7.1%.
With White unemployment dipping to 3.2%, the White/Black
joblessness gap widened sharply to 3.9 percentage points.
And it appears that Black women bore the brunt of it.
"The increase in Black unemployment appears to be borne by
Black women, who experienced a huge jump in their unemployment
rate from 4.9% to 6.2% in December, due in part to lower
employment levels as well as an increase in labor force
participation," tweeted Elise Gould, senior economist at the
Economic Policy Institute.
Wall Street is lower in late morning trading, after the
employment report seemed to confirm the Fed's stated intent to
whisk away the punch bowl of near-zero interest rates.
Tech, which benefited most from that punch bowl, is the
biggest albatross around the stock market's neck, with chips
in particular, having a bad day.
(Stephen Culp)
*****
BULL, BEAR, AND FENCE-SITTER CAMPS ALL ABOUT EQUAL (1036
EST/1536 GMT)
The percentages of individual investors expecting stocks to
be flat or down over the next six months both rebounded in the
latest American Association of Individual Investors Sentiment
Survey (AAII). With this, bulls reined in their horns a bit. As
a result, around one-third of investors call each of the
bullish, bearish, and neutral camps home.
AAII reported that bearish sentiment, or expectations that
stock prices will fall over the next six months, increased 2.8
percentage points to 33.3%. Pessimism extended its streak of
being at or above its historical average of 30.5% to seven
consecutive weeks.
Neutral sentiment, or expectations that stock prices will
stay essentially unchanged over the next six months, moved up by
2.1 percentage points to 33.9%. Neutral sentiment is above its
historical average of 31.5% for the fifth consecutive week.
Bullish sentiment, or expectations that stock prices will
rise over the next six months, fell by 4.9 percentage points to
32.8%. Optimism remains below its historical average of 38.0%
for the seventh consecutive week.
AAII noted that all three indicators are within their
typical historical ranges, and that most of the responses to
this week’s survey were recorded prior to Wednesday's sharp
market decline.
With these changes, the bull-bear spread fell to -0.5 from
+7.2 last week:
(Terence Gabriel)
*****
U.S. STOCKS TRY TO FIND FOOTING (1015 EST/1515 GMT)
U.S. stocks are churning early Friday after data pointed to
weaker-than-expected job growth, while a rise in wages fueled
concerns about higher inflation.
That said, after moving around the flat line so far, the
major indexes have now fallen into the red again.
Traders remain focused on whether the Nasdaq can
continue to hold its December lows:
Meanwhile, value is once again outperforming growth
. However, both FANGs and banks are on
the plus-side. Chip stocks are weak.
Here is where markets stand in early trade:
(Terence Gabriel)
*****
U.S. STOCKS POISED FOR MODEST OPENING DIP AFTER PAYROLLS
(0900 EST/1400 GMT)
U.S. equity index futures are modestly red in the wake of a
softer-than-expected December non-farm payrolls print. The
headline jobs number came in at 199k vs a 400k estimate. That
said, wage data was hotter than expected:
Regarding the numbers, Gennadiy Goldberg, interest rate
strategist at TD Securities said, “It’s a bit of a mixed bag
really. The headline numbers are quite a bit lower than
anticipated, but a lot of the measures of labor market
tightness, including wages and the unemployment rate, do suggest
that we may be closer to full employment than was previously
expected."
Goldberg added "I think overall this shouldn’t really
detract the Fed from looking to tighten rates early. I think
this should keep them quite hawkish, even though this most
likely will be a temporary COVID induced disruption and we’ll
probably see more of this in the next few months as well."
U.S. stock futures are red, with the Nasdaq 100 off
the most at around 0.3%. Financials, and energy
are quoted up in premarket, while tech is lower.
The U.S. 10-Year Treasury yield is attempting to
rise for a sixth-straight day, which is something it hasn't done
since January 2021. It's high so far today of 1.7710%, is just
shy of its March 2021 peak at 1.7760%.
Here is your premarket snapshot:
(Terence Gabriel, Karen Brettell)
*****
FOR FRIDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT
- CLICK HERE:
(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)