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* Wall Street's three main equity indexes down ~1.6%
* Real estate weakest S&P sector; energy shows gains
* Dollar up, crude down; spot gold jumps
* US 10-Year yield ~0.91%

Jan 4 - 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

VOLATILITY ROCKETS AHEAD OF U.S. SENATE RUNOFFS
Wall Street's "fear gauge" is soaring as investors fret over
the outcome of two Senate runoffs in Georgia.
The races will determine whether Republicans or Democrats
control Congress and hence could influence the agenda of
President-elect Joe Biden's administration. A "blue sweep," or
Democratic control, could pave the way for greater corporate
regulation and higher taxes, though also for greater fiscal
spending.
John Stoltzfus, chief investment strategist at Oppenheimer
Asset Management, wrote on Monday that he expects the S&P 500
to drop 6% to 10% if Democrats take both Senate seats.
Other investors appear to be bracing for a negative scenario
as well. The Cboe Volatility Index, last up more than 4
points at around 27, is on track for its biggest one-day jump
since late October.
The VIX futures curve, which reflects longer-term
expectations for market gyrations, has also inverted for the
first time since the U.S. presidential election in November. An
inversion of the curve suggests that investors view the
short-term as more uncertain than the longer-term.
Yet the gap between historical volatility and implied
volatility is near its widest level over the past two years for
ETFs tracking the S&P 500 and the Nasdaq 100, according
to data from Susquehanna Financial Group. In other words,
investors are bracing for market moves much greater than those
that have occurred recently.
ETFs tracking the technology and healthcare sectors, which
could face greater regulation under a "blue sweep," also have
large gaps between historical and implied volatility.
So do ETFs tied to silver and oil. Christopher Murphy,
co-head of derivatives strategy at Susquehanna, said
commodity-focused ETFs have recently seen a flurry of activity
as some investors hedge against the possibility of higher
inflation as a result of greater fiscal stimulus.
Arnim Holzer, macro and correlation defense strategist at
EAB Investment Group, has recommended that his clients buy calls
on a silver ETF and puts on a long-duration Treasury ETF
. Those tactics would benefit from a rise in silver
prices and Treasury yields.
Such trades "look like excellent inflation fear hedges," he
wrote.
(April Joyner)
*****

BITCOIN: THAT "TOO FAR, TOO FAST" LOOK AGAIN? (1242 EST/1742
GMT)
Bitcoin has kicked off the new year with quite a
swing. After rallying around 20% in just the first 3 days of the
year, the cryptocurrency slid as much as 20% Monday. It has
since snapped off its low, and is now showing a loss of around
7% for the day.
In any event, bitcoin was one of 2020's star performers,
with an advance of nearly 305% on a closing basis. That thrust,
however, was a far-cry from its 2017 gain of 1,336% or its 2013
advance of 5,428%.
Nevertheless, with last year's surge, bitcoin's weekly chart
has once again taken on that parabolic look, that can suggest a
market may be rising too far, too fast:




Indeed, a parabolic rise is an exponential move, where the
angle of ascent increases to such a point, it becomes
unsustainable. This can lead to a very sharp reversal once the
parabolic curve is broken.
This because a parabolic rise can be the result of extreme
greed, and/or manic behavior, on the part of investors and
traders.
Of note, after its stellar gains of 2013 and 2017, the
following years, bitcoin suffered. It lost around 56% in 2014,
and 73% in 2018.
For some additional perspective, it might be worth noting
that leading up to the Nasdaq's Y2K top, the tech-laden
index surged about 86% in 1999. Although, in many ways just a
blip compared the kind of rises bitcoin has seen, it was, and
remains, the Nasdaq's best yearly gain ever. Nasdaq did not see
a new high until 2015.
Spot gold's 1979 rise of nearly 127%, which was the
year before its 1980 top, stands as its best yearly gain ever.
After its 1980 top, gold entered a multi-decade bear market, and
did not see a new high again until 2007.
Clearly, there is no absolute level of increase, or rate of
ascent, that signaled the end to the highlighted advances in any
of these markets. Nevertheless, the extent of the rallies
mentioned were especially sharp on a relative basis.
Thus, it now remains to be seen if bitcoin, in the wake of
its 3rd best yearly gain ever, can sustain its thrust, or if
another burnout, awaits.

(Terence Gabriel)
*****

SEMIS, ENERGY OUTPERFORM IN A BLEAK MARKET (1206 EST/1706
GMT)
While U.S. stocks are a sea of red on Monday, the
semiconductor sector was the only gainer for much of the
morning. That said, even chips have lost their lustre, though
they are still among the best performers on a relative basis in
a dreary market.
The energy sector is also holding up better than
much of the market after in early afternoon trade.
One reason chips were doing better than most on Monday
morning may be uncertainty about the future, according to Kim
Forrest, chief investment officer at Bokeh Capital Partners in
Pittsburgh:
"It’s the easy thesis: We don’t know what the future holds,
with respect to what technology will be a winner this year, but
we know there is demand for more computers and connection from
the analog to the digital world."
These uncertainties about the future, including Tuesday's
Georgia Senate run-off election as well as restrictions that
could come from rising covid cases, cast a pall over the broader
market.
And after rising as much as 2.7% earlier in the session,
confidence even in semis waned sharply and the Philadelphia
Semiconductor index was last down 0.5%. Even Micron
Technology, couldn't resist the general flow and was last
down ~1% even after its positive news in the form of price
traget increases from UBS to $90 from $82 and from Morgan
Stanley to $88 from $80.
In comparison Wall Street's three major indexes are all down
around 2%, and while the broad S&P technology sector
is down 2.3%. Gold is up 2% gain.
Here is you mid-session snapshot:



(Sinéad Carew)
*****

IN WITH THE NEW: 2021 STARTS WITH STRONG PMI, CONSTRUCTION
DATA (1105 EST/1605 GMT)
Two indicators released on Monday helped investors ease
their way into the new year with welcome signs of economic
recovery from the pandemic recession, now entering its 12th
month.
The National Bureau of Economic Research determined the
United States economy entered recession in February 2020.
Activity in the U.S. manufacturing sector grew in December
at a faster pace than previously reported, according to global
financial information firm IHS Markit.
Markit's final purchasing managers index (PMI)
hit a reading last month of 57.1, finishing a tumultuous year at
a six-year high.
The data marks an increase from the 56.5 rate originally
reported. A PMI number above 50 indicates activity in the sector
expanded from the prior month.
"Producers of machinery and equipment reported sustained
strong demand, suggesting companies are increasing their
investment spending," writes Chris Williamson, chief business
economist at Markit.
The news, however, is not all rainbows and lollipops.
"The survey also highlights how manufacturers are now not
only facing weaker demand conditions due to the pandemic, but
are also seeing COVID-19 disrupt supply chains further, causing
shipping delays," Williamson adds. "These delays are limiting
production capabilities as well as driving producers' input
prices sharply higher, adding to the sector's woes."

On Tuesday, the Institute for Supply Management's (ISM) more
closely-watched PMI report is expected to come in at 56.6.
ISM and Markit PMI differ in the weight they give
subcomponents such as new orders, employment and inventories.
The chart below shows how widely the two indexes can differ
although in recent months they appear closer to agreeing:

A separate report from the Commerce Department showed
expenditures on construction projects increased by
0.9% in November, a hair slower than the 1% analysts expected.

Still, this is on the back of October's upwardly-revised
1.6% growth.
The gains were driven by a 2.7% jump in spending on
residential projects, as homebuilders struggle to keep pace
spiking demand for lower-density communities and work-from-home
office space amid pandemic restrictions.
The headline number was limited, however, by decreases in
nonresidential and public projects, which eased by 0.8% and
0.2%, respectively.
Strong residential activity has driven construction past
pre-pandemic levels, but non-residential outlays remain nearly
6% below their early 2020 pace," says Nancy Vanden Houten, lead
U.S. economist at Oxford Economics.

Market participants were unimpressed however and all three
major U.S. stock indexes reversed early gains in morning
trading.
(Stephen Culp)
*****

WALL STREET TAKES A NEW YEAR'S DIP TO KICK OFF 2021 (1025
EST/1525 GMT)
Wall Street's three major averages are having a bumpy start
to the trading year, starting higher before losing gains.
One thing on investors minds was Tuesday's twin U.S. Senate
runoff elections in Georgia, which will determine control of the
chamber and, effectively, the fate of President-elect Joe
Biden's agenda including rewriting the tax code, boosting
stimulus and infrastructure spending.
Encouraging progress in COVID-19 vaccines came with news of
surging cases and restrictions. Moderna is up almost 4%
after raising its 2021 vaccine output forecast.
But as Britain was first to began vaccinations with Oxford
University and AstraZeneca's COVID-19 shot on Monday, a
new surge of cases threatened to overwhelm its hospitals.
Scottish First Minister Nicola Sturgeon imposed the most
stringent lockdown since last spring.
In the United States the U.S. Centers for Disease Control
and Prevention (CDC) on Sunday reported 349,246 deaths from the
new coronavirus, a rise of 2,321 deaths from its previous count.
Vaccinations here have fallen far short of early
targets, as officials had hoped to have 20 million people
vaccinated by the end of the 2020.
Among S&P 500 major industry sectors only two were in
solidly positive territory with the biggest gains in the energy
sector and materials, both up almost 1%.
Here is your opening snapshot:



(Sinéad Carew)
*****


S&P 500: ANOTHER DASHBOARD LIGHT TURNS ON (0900 EST/1400
GMT)
The S&P 500 ended Friday at a fresh record high after
tacking on 16.3% in 2020. To get there, the benchmark index
advanced about 68% off its March 2020 closing low.
With this, in a sign of what may be an especially overheated
market, the percentage of S&P 500 stocks above their 200-day
moving average reached a more than 10-year high in early
December, when it hit 91.68%.
After dipping to about 88% on December 22, this measure
ended the year at about 91%. Although, only slightly below the
early December peak, it is nevertheless, weaker, despite the SPX
going to higher highs.
That said, it remains to be seen if this slight divergence
is enough to ultimately coincide with a SPX top of some form. Of
note, when the SPX peaked in February this measure had weakened
from a high of nearly 85% in January to about 76% when the SPX
topped on February 19th.
Meanwhile, another measure, based on the CBOE equity/put
call ratio, which can act as a contrarian measure of sentiment,
is suggesting the market is vulnerable to a reversal.




(Terence Gabriel)
*****


FOR MONDAY'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)