Last checked at 
* Major US indexes now modestly green; small caps
underperform
* Utilities lead S&P sector gainers; materials weakest group
* Dollar up; gold slightly lower, crude down
* US 10-Year Treasury yield ~1.09%
Jan 13 - 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
WITH RISKS ON BACKBURNER, POSITION FOR WHEN THE ECONOMY IS
COOKING (1345 EST/1845 GMT)
Scott Wren, Senior Global Market Strategist at the Wells
Fargo Investment Institute (WFII), is out with some comments in
the aftermath of the Georgia run-offs, which now largely allows
Democrats to control the legislative agenda, and what it might
mean for stocks.
Wren notes that the U.S. stock market continues to hover
near record highs despite President-elect Joe Biden's campaign
promises to "hike a variety of taxes, including those on the
incomes of high-earning individuals and corporations." Wren adds
that "regulations removed by the Trump administration will be
brought back, likely sooner rather than later."
According to Wren, historically, the stock market's initial
reaction to the possibility of higher taxes and greater
regulation has frequently been negative. That said, Wren
believes, at this time, the market is in "immediate
gratification mode," and has pushed such risks to the
"backburner" for now. Wren believes markets see tax increases as
a late 2021/very early 2022 story given that the economy is
still hobbled by issues related to the pandemic.
Wren also emphasizes that with a narrow majority in the
House, and a split Senate, that includes a number of moderate
Democrats, enacting a number of Biden's touted proposals "will
not be downhill sledding."
In any event, Wren does believe the economy will be helped
by additional stimulus measures, and therefore he favors
segments of the market that he expects will benefit most from an
economic recovery.
With this in mind, Wren says WFII continues to prefer U.S.
large- and mid-cap stocks to international equities. His favored
sectors include, tech, consumer discretionary, communication
services, and materials. He also believes healthcare will
benefit from increased federal spending.
(Terence Gabriel)
*****
MIDDAY UPDATE: WALL STREET GETS ITS STORY STRAIGHT (1230
EST/1730 GMT)
U.S. stocks wandered between positive and negative territory
through much of the morning on Wednesday, but by midday the
indexes appear to have settled on a theme.
Market-leading FAANG stocks: Facebook, Amazon
, Apple, Netflix and Google parent
Alphabet, are all up, boosting the Nasdaq and
the S&P 500 into the green, while the blue-chip Dow
showed a modest decline.
"Investors have one eye on Washington and the other eye's on
earnings," said Paul Nolte, portfolio manager at Kingsview Asset
Management in Chicago.
"We've had a great run over the last 12 weeks," Nolte added.
"The markets are looking tired and there's no catalyst to lead
the markets lower or higher. Earnings could provide that
direction."
The House of Representatives seemed close to impeaching
President Trump for inciting violence last week at the Capitol
building, and the Senate trial could commence as soon as Friday.
Chipmaker Intel is also providing among the
heftiest boosts to all three major indexes after the company
announced it was replacing CEO Bob Swan with VMWare's
Pat Gelsinger. Its shares are last up >7%.
Here's your midday snapshot:
(Stephen Culp)
*****
INFLATION, HOUSING MARKET: SAME AS IT EVER WAS (1105
EST/1605 GMT)
U.S. data released on Wednesday shocked exactly no one with
the alarming news that inflation is cool and the housing market
is hot - same song, thousandth verse.
The prices American consumers pay for a basket of items -
the consumer price index (CPI) - increased by 0.4%
in December according to the Labor Department, inline with
consensus and an acceleration from November's 0.2% growth.
The gain was primarily driven by an 8.4% jump in gasoline
prices. Stripping away volatile food and energy prices,
so-called "core CPI" grew by a paltry 0.1%.
Year over year, core CPI growth held firm at 1.6%, well
below the U.S. Federal Reserve's average annual inflation target
of 2%. While the Fed's preferred inflation yardstick is the PCE
index, the languid inflation numbers from nearly every major
indicator suggests the central bank's easy monetary policy isn't
going anywhere for the time being.
"Sluggish aggregate demand keeps underlying price pressures
at bay," writes Kathy Mostjancic, chief U.S. financial economist
at Oxford Economics (OE). "Moreover, the ongoing pandemic
continues to depress gains in core service prices."
It's always a good idea to revisit our old friend The Misery
Index. While the MI takes different forms, it's generally
considered to be the sum of the unemployment rate and annual
inflation growth.
As seen in the graphic below, the MI increased in 2020's
final month for the first time since April:
Finally, demand for home loans jumped by an impressive 16.7%
last week, according to the Mortgage Bankers Association (MBA).
Even with the average 30-year fixed contract rate
inching up 2 basis points to a still-historically-low 2.88%,
refi applications, which accounted for 74.8% of the
total, surged by more than 20%. Demand for loans to purchase
homes rose by 8%.
"Sustained housing demand continued to support purchase
growth, with activity up nearly 10 percent from a year ago,"
said Joel Kan, Associate Vice President of Economic and Industry
Forecasting at MBA.
But can the housing market, the darling of the U.S. economic
recovery, continue its impressive run? Perhaps not.
"We expect some moderation in the pace of home sales from
the late 2020 pace, as rising home prices and limited
inventories constrain sales," says Nancy Vanden Houten, lead
economist at OE.
Investors had difficulty deciding on whether to accentuate
the positive or the negative in morning trading, with the major
U.S. indexes ping-ponging between red and green.
Chips seem determined to have a good day, while
economically sensitive small caps and transports
are easing off Tuesday's record closing highs.
(Stephen Culp)
*****
EUROPEAN STOCKS: UNLOVED FOR THE PAST TWO DECADES, WHAT
ABOUT THE NEXT? (1045 EST/1545 GMT)
While Wall Street and Asian stocks are at all-time highs,
Europe is clearly lagging and has been for the past 20 years.
The old continent's share in the value of global equities
has almost halved over the past two decades, to 17% from over
30%, as per BofA Global Research.
The U.S. bank blames it on the absence of FAANGs, bigger
exposure to cheap sectors like banks and energy, aging
population, pressures from de-globalisation and climate change,
slower GDP growth versus rest of the developed world.
Apparently, Apple sells more watches than the
entire Swiss watch industry, and Cisco's market cap is
more than that of leading telecom service providers in UK,
France, Spain, Italy and Switzerland, combined, according to the
note.
What does the future look like for European investors? BofA
lists a handful of sectors that could shape the markets in the
next decade.
FANGMAN to GRANS: While U.S. remains a FANGMAN
market(Facebook, Amazon, Alphabet,
Microsoft, Apple, Netflix), Europe is
dominated by GRANS (GlaxoSmithKline, Roche,
AstraZeneca, Novartis, Sanofi).
Healthcare has been among the sectors whose markets weightings
have grown in the wake of the pandemic.
CLIMATE ACTION: Eight of the top 10 clean energy companies
by market cap are in Europe, which is also the undisputed leader
of ESG markets.
LUXURY: Luxury companies in Europe are worth more than its
autos sector, while in 2009 they were worth less than one-third;
LVMH is valued more than 4x Daimler, the largest
European carmaker.
GOLDEN AGE FOR EU CLEANTECH: 85% of Europe's electricity is
expected to be from zero-carbon sources by 2030 vs. 57% in 2020;
BofA sees tailwind from economics, policy, funding, tech
innovation and consumer adoption.
Even so, BofA says Europe's pro-cyclical nature and a weak
domestic growth means that European EPS only outperforms during
periods of strong global growth, and it's lack of exposure to
high-growth sectors like technology will drive its structural
underperformance in future.
(Sruthi Shankar)
*****
U.S. STOCKS WAFFLE, THEN HEAD SOUTH (1008 EST/1508 GMT)
Wall Street waffled on Wednesday after the opening bell,
strobing between green then red - but seemed to decide, a
half-hour into the session, to settle in negative territory.
There was little in the way of a catalyst to turn investor
moods sour or sweet. The ongoing vaccine rollout and
expectations for more generous fiscal stimulus from the incoming
Biden administration was again offset by the resurgent pandemic
and the unfolding drama in Washington.
The U.S. House of Representatives is expected to vote for
the second time within 12 months to impeach President Donald
Trump, this time for inciting an insurrection.
That insurrection caught the attention of U.S. Federal
Reserve officials, who said on Tuesday that while concerns about
continued violence pose a risk, but the transition to a new
administration on Jan. 20, and a likely accelerating vaccine
rollout have left them optimistic.
On the economic front, CPI data appeared to confirm tepid
inflation that can keep the Fed's monetary policy accommodative
for the foreseeable future.
In a reversal from Tuesday, economically sensitive small
caps and transports are underperforming the
broader market.
Here's your opening snapshot:
(Stephen Culp)
*****
TECH VS FINANCIALS: COMING BACK TO EARTH (0900 EST/1400 GMT)
After an unprecedented streak of consecutive higher monthly
closes that ended in August of last year, the S&P 500 tech
sector / S&P 500 financial sector ratio has
been coming back to earth.
This, as value took the reins from growth.
Indeed, the tech / financials ratio ended at 5.23 in August,
after having logged 11-straight higher monthly closes. (Click on
chart below)
That's one more month than the 10-month win streak the ratio
recorded into the Nasdaq/tech sector October 2007 top.
It was also this ratio's longest streak of higher monthly closes
using Refinitiv data back to 1989.
Additionally, through August, the ratio ended above its
upper monthly Bollinger Band (BB) for eight straight months
(more than two standard deviations above its 20-month moving
average). That was also its longest such streak going back to
1989. Thus, the ratio appeared especially high on a relative
basis.
With September's downtick, the ratio came back inside the
upper monthly BB, suggesting potential for a more significant
reversal.
Now, at 4.36, the ratio is on track to fall for a 5th
straight month. A continued decline to even just meet the rising
20-month moving average, now around 3.99, would suggest
additional tech underperformance relative to financials, and
with this, likely further growth underperformance vs value.
(Terence Gabriel)
*****
FOR WEDNESDAY'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)
