* Major U.S. indexes close sharply lower; Nasdaq ends down
~2.7%
* Comm svcs weakest major S&P sector; staples edges into
green
* Dollar, crude, gold, bitcoin all lower
* U.S. 10-Year Treasury yield ~1.76%
Jan 21 - 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
BABY AND THE BATH WATER BOTH TOSSED (1605 EST/2105 GMT)
With rate jitters, fear-of-the-Fed, recession risks, Ukraine
tensions, and Netflix's disappointing earnings
report all to contend with, U.S. stocks suffered one bad week.
Every major S&P 500 sector closed down for the week
with consumer discretionary hit hardest.
The Dow, suffered its biggest weekly percentage
decline since October 2020, while the SPX and Nasdaq Composite
had their biggest weekly slides since March 2020.
All three of the major indexes ended Friday below their
200-day moving average.
The small-cap Russell 2000, the NYSE FANG+TM index
, of which NFLX is a member, and the Philadelphia SE
Semiconductor index also had their biggest weekly
percentage declines since March 2020.
The DJI finished down 6.9% from its early-January record
close, while the SPX ended off 8.3% from its early-January
record close. The Nasdaq Composite ended down 14.3% from its
November closing peak. The RUT finished off 18.6% from its
November record close.
The FOMC meets next week on January 25-26.
Here is Friday's closing snapshot:
(Terence Gabriel)
*****
INDIVIDUAL INVESTORS KEEP A WATCHFUL EYE ON INFLATION (1345
EDT/1845 GMT)
As part of the most recent American Association of
Individual Investors (AAII) Sentiment Survey, AAII
asked its members which factors are most influencing their
six-month outlook for stocks. Many respondents listed multiple
factors.
AAII reported that inflation topped the list as a key
factor, with 29% of respondents citing it. About 20% mentioned
interest rate hikes as another factor vital to their outlook.
About 15% of respondents listed both the coronavirus,
including the omicron variant, and/or political challenges as
considerations.
Meanwhile, about 9% of respondents noted economic concerns
such as employment levels and the labor participation rate,
while 7% of respondents said they will be paying attention to
company earnings in 2022.
Monetary policy and the Federal Reserve were flagged by 7%
of respondents. Roughly 4% of respondents mentioned supply chain
issues.
Here are a couple of quotes from investors on the matter:
“The market is factoring in interest rate increases.
Inflation is expected to stabilize and remain high, and we will
learn to live with omicron.”
“Although strong jobs demand will create inflation, it will
also provide a base for strong consumer demand. I expect
inflation to be elevated due to labor and housing but to get a
respite from goods inflation as supply chain pressures ease.”
(Terence Gabriel)
*****
AFTER NETFLIX'S BIG DISAPPOINTMENT, WHAT NEXT? (1310
EST/1810 GMT)
Investors may be bracing for more bad news on the earnings
front after Netflix's gloomy forecast late Thursday,
with a number of market heavyweights due to report next week.
Netflix's stock was down more than 21% on Friday and the
Nasdaq was down more than 1%, adding to recent market
weakness and worries about the earnings season.
While it's still early in the game, the reporting period so
far appears weaker than in recent quarters. Just 76.6% of
earnings reports are beating analysts' expectations compared
with a full-season average of 84% of companies beating estimates
over the last four reporting periods, according to Refinitiv
data.
The S&P 500 earnings growth forecast for the fourth quarter
is up just slightly from a week ago. As of Friday, overall
year-over-year profit growth for S&P 500 companies is expected
to be 23.7% versus 23.1% a week ago, per Refinitiv data.
Microsoft, Tesla and Apple are
among companies due to report their results next week, as the
earnings season overall goes into full gear.
That could have a big influence on stocks. "Right now the
(investor) psychology is kind of leaning to the negative bias.
It could change quickly. We're entering the peak part of the
earnings season," Peter Tuz, president of Chase Investment
Counsel in Charlottesville, Virginia, said Thursday.
"If some of the bigger companies, especially the big tech
companies, really can report good numbers and outlooks, that
could change the psychology very quickly."
(Caroline Valetkevitch)
*****
FEW BULLS, LOTS OF BEARS! (1220 EST/1720 GMT)
The percentages of individual investors with a bullish
outlook for the U.S. stock market fell to an 18-month low in the
latest American Association of Individual Investors Sentiment
Survey (AAII). With this, bearish sentiment jumped to a 16-month
high.
AAII reported that bullish sentiment, or expectations that
stock prices will rise over the next six months, fell by 3.9
percentage points to 21.0%. Optimism was last lower on July 29,
2020 (20.2%). This is the ninth consecutive week that bullish
sentiment is below its historical average of 38.0%.
Bearish sentiment, or expectations that stock prices will
fall over the next six months, surged by 8.4 percentage points
to 46.7%, staying above the historical average of 30.5% for the
ninth consecutive week. This is the highest level of pessimism
since September 9, 2020 (48.5%).
Neutral sentiment, or expectations that stock prices will
stay essentially unchanged over the next six months, decreased
by 4.5 percentage points to 32.3%. This is the seventh
consecutive week that neutral sentiment is above its historical
average of 31.5%.
AAII noted that bullish sentiment is unusually low and
bearish sentiment is unusually high. "Since July 1987, when the
level of bullishness in the Sentiment Survey was more than one
standard deviation below its historical average (currently
readings below 28.0%), the S&P 500 index has realized six-month
average and median gains of 8.2% and 8.0%, respectively."
With these changes, the bull-bear spread fell to –25.8 from
-13.4 last week. This is the most negative the
spread has been since late-July, 2020 (–28.2):
(Terence Gabriel)
*****
TWO STEPS BACK: ECONOMIC RECOVERY STUMBLES BACKWARD INTO
2022 (1137 EST/1637 GMT)
The U.S. economy has taken a couple of steps backward as it
foxtrots its way back to full recovery from the steepest, most
abrupt recession in history.
Recovery trackers from economic analysis firm Oxford
Economics (OE) and broker Goldman Sachs (GS), which use
different groups of metrics to assess the status of the United
States' dance back to 'normal,' both reveal a backslide, with
the health picture deteriorating at the hands of the Omicron
COVID-variant and a hawkish pivot by the Fed identified as the
culprits.
"Health conditions stood at their worst in 10 months, while
demand weakened sharply," writes Oren Klachkin, lead U.S.
economist at OE, who said the Omicron/Fed double-whammy sent the
OE Recovery Tracker to its lowest since last April.
"Financial conditions tightened, and mobility softened,"
added Klachkin, who then offered reasons to be optimistic,
saying "stronger employment and production data indicate that
under the surface the recovery is maintaining positive
momentum."
The graphic below, courtesy of OE, shows a history of the
recovery broken down by its six main metrics: financial,
mobility, production, employment, demand, and health (click to
enlarge):
As for GS, lead analyst Jan Hatzius said that while the
spike in COVID-related hospitalizations are currently well above
the two previous waves, Omicron is resulting in a smaller
percentage of hospitalizations and deaths.
But sick workers made their absence felt.
"The share of the adult population not working because of
virus-related reasons tripled" in the first month of the year,
Hatzius writes, outpointing that public-facing workers in
education and healthcare saw and average 10% absenteeism rate,
and airline staff in mandatory isolation due to positive COVID
test results caused "an average of 8% of flights were canceled
each day between December 27 and January 7."
Virus fears are influencing consumer behavior, according to
GS, with 59% of adults viewing health risks from normal
activities from "moderate" to "large," a 15 percentage point
gain since Omicron made its entrance.
Hatzius cites a marked decline in TSA throughput and Open
Table's measure of seated diners as evidence of declining
activity in virus-sensitive services.
The coming week should offer even more clarity regarding the
strength of current headwinds and the economy's ability to
withstand them.
The FOMC's statement and Q&A session at the conclusion of
its two-day monetary policy meeting will be the star of the
show, with the Commerce Department's first stab at
fourth-quarter GDP, PCE inflation, consumer spending, and new
home sales filling out the supporting cast.
(Stephen Culp)
*****
NASDAQ HEADS FOR BIGGEST WEEKLY FALL SINCE MARCH 2020 (0958
EST/1458 GMT)
Wall Street's main indexes are continuing lower early
Friday, and on track for at least their third-straight week of
declines, after a weak forecast from Netflix sent shares of the
streaming company and its peers spiraling down.
Indeed, it's been an especially rough week for the Nasdaq
. The tech-laden index is off more than 6%, putting it on
pace for its biggest weekly percentage fall since a 12.6%
collapse in March 2020. Under the surface, chips remain
especially weak. The Philadelphia SE Semiconductor index,
with a more than 11% slide, is also on pace for its worst week
since a 16% swoon in March 2020.
Meanwhile, despite a sharp downward reversal in the U.S.
10-Year Treasury yield, which has seen it slide from
Wednesday's high of 1.9020% back to the 1.75% area on Friday
, growth is on track to underperform value
on the day, and for the fourth-straight week. The IGX/IVX
ratio is on pace for its biggest monthly drop since February
2001.
Here is where markets stand in early trade:
(Terence Gabriel)
*****
UKRAINE TENSIONS COULD FAVOR US ASSETS (931 EST/1431 GMT)
Tensions between Russia and Ukraine are grabbing the
attention of investors, who are considering ways any turmoil
will ripple through markets.
Strategists at BCA Research assign a 50/50 probability that
diplomacy in the region will fail, leading to a "minor invasion"
of Ukraine, as well as a 5% chance Russia invades the whole
country. U.S. Secretary of State Antony Blinken said after talks
with Russia's foreign minister on Friday that Moscow would face
a "swift, severe and a united response" if it invades Ukraine.
In a note on Friday, BCA strategists gamed out a scenario
where Russian actions result in sanctions, with Russia
retaliating in a way that aggravates Europe's "energy crisis."
"For investors, this means that US-Russia tensions pose a
tactical threat to European risk assets," BCA strategists wrote.
Historically, the strategists said, U.S. risk assets have
outperformed foreign counterparts when global risk rises.
"The relatively more defensive nature of the US dollar and
US equities implies that US stocks and the greenback will
outperform in an environment of elevated risk," the strategists
said.
(Lewis Krauskopf)
*****
NASDAQ COMPOSITE: WILY COYOTE LOOKING MORE LIKE A BEAR (0900
EST/1400 GMT)
The Nasdaq Composite ended Thursday down nearly 12%
from its November-19 record close. And although its just the
early days of 2022, the IXIC's 9.5% decline so far puts it on
track for its biggest yearly drop since 2008.
Of note, on a daily basis, the IXIC ended Thursday at its
most oversold since the February/March 2020 panic:
Therefore, the Composite appears ripe for a bounce at any
time. However, traders will be assessing the structure and
character of any rally, since sudden strength could just prove
to be a reaction to help alleviate the oversold condition, in
what will still prove to be a continuing trend to the downside.
For example, in the August/December 2018, and February/March
2020 collapses, the deepest oversold readings on a daily basis
occurred in the earlier stages of the declines. It was not until
the IXIC hit new lows, accompanied by a bullish momentum
convergence, that true bottoms were then found.
Meanwhile, a number of Nasdaq internal measures are
especially weak again. The Nasdaq New High/New Low (NH/NL) index
has fallen to 16.1% - click here:. The Nasdaq
McClellan Summation (McSum) has plunged to -5,276 - click here:
. The Nasdaq weekly Advance/Decline (A/D) ratio is
at 0.79. These measures have yet to stabilize, but
have the potential to reach washed-out levels at any time.
That said, when looking at the Composite's yearly Bollinger
Band (BB) chart, the downside still appears to beckon. The IXIC
still needs to fall to least 13,645 to tick back below the upper
yearly band. Click here:
At that level, the Composite would be down 15% from its
record-high close. And if its nine-year streak of yearly closes
above the upper-yearly BB is to end, 2022 will likely see some
venerable roadrunners, like tech, chips, and
FANGs, prove to be road-kill.
(Terence Gabriel)
*****
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)