* Nasdaq, S&P 500 gain; DJI dips
* Comm svcs leads S&P sector gainers; staples weakest group
* Dollar falls, bitcoin dips, gold ~flat, crude gains
* U.S. 10-Year Treasury yield rises to ~1.52%
Dec 8 - 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
2022: THE YEAR OF THE HANDOFF - LPL (1345 EST/1845 GMT)
LPL Financial Research is out with their 2022 Outlook.
“The U.S. economy bounced back from its worst year since the
Great Depression in 2020 with one of the best years of growth in
nearly 40 years in 2021”, said LPL Chief Market Strategist Ryan
Detrick.
“A combination of record stimulus, a healthy consumer, an
accommodative Fed, vaccinations, and reopening of businesses all
contributed to the big year. In 2022, the economy may be ready
for a handoff, back to a greater emphasis on the individual
choices of households and businesses.”
As the U.S. economy transitions to mid-cycle, LPL
strategists see 4.0% to 4.5% GDP growth next year. Fiscal and
monetary policies played big roles in the economic recovery in
2021, but LPL’s strategists expect 2022 to play out as a
"handoff" — with consumers, productivity, small businesses and
capital investments all playing a part in the next stage of
economic growth.
With this, LPL expects stocks to deliver additional gains
next year, believing the S&P 500 could be fairly valued at 5,000
to 5,100 at year-end 2022 (or around 7%-9% above current
levels). Additionally, they favor U.S. over developed
international, value over growth early in the year, and
cyclicals over defensives.
As for bonds, LPL expects interest rates to move modestly
higher in 2022 based on near-term inflation expectations and
improving growth expectations once the impact of the COVID-19
Delta and Omicron variants recede. Their 2022 forecast for the
10-year Treasury yield is 1.75% to 2.00%.
(Terence Gabriel)
*****
PIPER SANDLER SEES S&P 500 UP 10% NEXT YEAR (1300 EST/1800
GMT)
The S&P 500 is likely to end 2022 up about 10% from current
levels, supported by an ongoing, albeit slowing, economic
recovery, Piper Sandler says in a report on Wednesday.
"Accommodative monetary policy and continued economic
momentum should support risk appetite and the TINA (there is no
alternative) playbook," Piper Sandler writes in its report,
reiterating its 2022 target of 5,150 for the S&P 500.
Real GDP next year should grow by 3.9%, "as this year’s pent
up consumer spending comes back to reality," according to Piper
Sandler.
Delving into how U.S. consumers are dealing with the current
inflation spike, DataTrek in a separate report says it checked
how frequently people have been using the words "cheap,"
"discount" and "coupon" in Google searches. It found that those
words are not being used more than in previous holiday shopping
seasons. That might suggest consumers are not reacting strongly
to inflation.
It is possible that the strong U.S. labor market is
offsetting inflation worries, or merely that consumers have
become good at finding deals without searching with the specific
words in question, writes Nicholas Colas, Co-founder of DataTrek
Research.
"No matter which explanation(s) is/are true, we see it as a
positive that American consumers are not fixated on finding the
very best value. Yes, that does feed into inflation pressures at
the margin. But it also allows for better corporate margins, and
that’s what drives earnings and therefore stock prices," Colas
writes.
(Noel Randewich)
*****
QUICKER FED RATE HIKES RISK STALLING ECONOMIC GROWTH (1202
EST/1702 GMT)
Earlier-than-anticipated interest rate hikes next year and
expectations of a potentially more-aggressive U.S. Federal
Reserve would likely spark a broad-based, risk-off trade in
financial markets and could slow economic growth, according to
Kathy Bostjancic, chief U.S. financial economist at Oxford
Economics.
While the bond market has priced in two full rate hikes in
2022 commencing in June and a more than 55% chance of a third,
Bostjancic examined the impact of three 25-basis-point hikes
starting in March and ending in July.
"Early rate hikes would spark an 11 (percentage point) rise
in the equity VIX index, a 14% decline in the S&P 500 stock
index, further widening in corporate bond spreads, a 3%
appreciation in the dollar, and a 65 (basis point) rise in the
10-year yield in first half of 2022 that unwinds in the second
half of the year," she wrote in a research briefing on Tuesday.
Economic activity would be hampered as the "sharp
contraction" in financial conditions would slow the flow of
credit to corporations and consumers.
"(This) would in turn weigh on corporate and business
confidence, which would further restrain economic growth,"
Bostjancic said in the briefing.
(Karen Pierog)
*****
LETTING THE FACTS GET IN THE WAY OF A GOOD STORY (1105 EST/
1605 GMT)
While Monday and Tuesday's U.S. equity market rally
undoubtedly made some investors happier, it left others cold.
After the Dow added 1.4%, the S&P 500 gained
2.1% and the Nasdaq Composite vaulted up 3%,
JonesTrading Chief Market Strategist Michael O' Rourke came out
with a Tuesday evening research note describing that session as
"one of those days where many of the stories driving or failing
to drive the tape, were head scratchers."
O'Rourke argued that China's announcement of the December
15th Reserve Requirement Ratio (RRR) reduction earlier was "not
a surprise" as China's Premier Li had already said Friday that
the PBOC would cut the RRR at the proper time.
Then the strategist pointed to Omicron developments,
describing late afternoon headlines from South Africa’s Africa
Health Research Institute as "at least mildly alarming" citing a
41 fold reduction in covid fighting antibodies for people who
had taken the Pfizer BioNTech vaccine.
The companies themselves said Wednesday that while a
three-shot course of their COVID-19 vaccine neutralizes Omicron
variant in a laboratory test, two doses brought significantly
lower neutralizing antibodies. On the plus side said they could
deliver an upgraded vaccine in March 2022 if needed.
Even before the companies' data O'Rourke was writing that a
"drop in protection should be a concern especially for a market
that has already dismissed the variant."
On top of all this, the strategist noted that "markets
clearly are not concerned about the Russian buildup on the
Ukrainian border." On Wednesday, Russian President Vladimir
Putin said Russia would send proposals to Washington within a
week after what he described as constructive talks with U.S.
President Joe Biden. But he called suggestions Russia was
planning to attack Ukraine "provocative".
But O'Rourke says "the world has evolved to one where
neither Russia nor China fear Western reprisal for territorial
aggression," he wrote. "It is fair to say financial market
complacency may simply result from the absence of real
consequences."
O'Rourke says the market also appeared to ignore progress in
lawmakers' efforts to lift the U.S. debt limit.
"That alleviates the potential headwind next week that
coincides with the FOMC decision on taper acceleration," he
said.
"We always talk about price setting the narrative in this
tape. That appeared to be the case today as facts did not get in
the way of a good story," he said referring to Tuesday's
session.
(Sinéad Carew)
*****
EUROPEAN BANKS: LONGING FOR 2022 (1025 EST/1525 GMT)
European banks have had a stellar 2021 so far with their
biggest yearly jump since 2009 when financial stocks bounced
back from the abyss of the great financial crisis.
The sector's index is up a whopping 31% year-to-date, which
comes just behind tech and its 32% jump.
Banking stocks have been the ultimate proxy to play the
reopening trade triggered by the November 2020 COVID-19
breakthrough and many investors and analysts must now wonder
whether it's time to call it a day.
Not JP Morgan.
"Their balance sheets are strong, the sector offers high
levels of capital return, and it is trading cheaper now than at
the start of the year, despite outperformance", the investment
bank's analysts write in their 2022 outlook.
While they remain long on European banks, their view is also
quite positive on the broad European equity market for which
they believe investors should stay bullish.
"We are calling for another year of positive earnings
surprises, relative to current consensus estimates", they write,
penciling in an upside of 13% and 16% in total returns.
(Julien Ponthus)
*****
U.S. STOCKS MIXED AND MODEST (1007 EST/1507 GMT)
Major U.S. indexes are mixed with just modest changes in
early trade on Wednesday after Pfizer and BioNTech said a
three-shot course of their COVID-19 vaccine was shown to have a
neutralizing effect against the new Omicron coronavirus variant
in a laboratory test.
In any event, the S&P 500, at around 4,691, continues
to flirt with the 76.4%/78.6% Fibonacci retracement zone of its
November 22 to December 3 decline in the 4,685.13/4,690.61 area,
while the Nasdaq Composite, at around 15,677, is still
struggling with the 61.8% Fibonacci retracement of its November
22 to December 3 decline at 15,722.821.
A failure to overwhelm these barriers can suggest this
week's bounce may just have been a counter-reaction in what
COULD still be a developing decline.
Here is where markets stand in early trade:
(Terence Gabriel)
*****
SUPPLY CHAINS ARE GETTING A BIT BETTER (0919 EST/1419 GMT)
Supply chain bottlenecks are a big issue for financial
markets as they threaten to slow down the economic recovery
while boosting inflation.
After some analysts a few weeks ago wondered whether the
worst was over, we might use some insight from Deutsche Bank.
It created a ‘bottleneck monitor’ which looks at goods moved
with ships, trucks, and airplanes.
“The cost of shipping has started to fall, and port
congestion is improving,” Deutsche Bank analysts say, mentioning
their first edition of the monitor, which focuses on the U.S.
“There is also a notable easing in road haulage conditions.
If this improvement persists, it would have material
implications for the outlook next year,” they add.
(Stefano Rebaudo)
*****
NASDAQ COMPOSITE: WASHED OUT OR WATERFALL? (0900 EST/1400
GMT)
Amid the Nasdaq Composite's recent weakness, one
measure of internal strength collapsed to its lowest level since
early-April, 2020:
Of note, when the Composite topped on February 19, 2020, the
Nasdaq New High/New Low (NH/NL) index, which had been diverging
from the IXIC at that time, stalled at 76.6%.
It then took the NH/NL index 17 trading days to collapse to
12.3%. In so doing, the Composite slid about 20%. From there,
the NH/NL index continued down to just 1.2% over the next six
trading days, while the Composite lost another 13% into its
March 23 low.
Recent NH/NL action is quite similar to back then. The
measure diverged into its early November highs, and then from a
reading of 75.7% on November 10, it fell 17-straight trading
days into its December 6 low of 12.5%. However, in a testament
to the market's current bifurcated state of mega-cap haves and
smaller-cap have-nots, however, the Composite only lost 5%.
On Tuesday, the NH/NL index ticked up to 14.8%.
It now remains to be seen if the Nasdaq became sufficiently
washed out, that a broad recovery can take hold. This measure
certainly has room to rise, and if it can reclaim its descending
10-day moving average it may add confidence in the potential for
more sustained strength under the surface.
A NH/NL index violation of Tuesday's 12.5% low can open the
door for a test of its March 2020 trough. With this, however,
the IXIC this time, may instead find itself going over a
waterfall.
(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)