* All 11 S&P sectors higher, industrials lead
* Gold, bitcoin lower; oil, dollar up
* 10-yr U.S. Treasury yield ~1.44%
Dec 2 (Reuters) - 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
FRESH LEGS? (1605 ET/2105 GMT)
U.S. stocks rallied on Friday, the Dow and S&P 500 notching
their best daily performance in months, fueled by a broad rally
as initial fears of the possible effects of the COVID-19 Omicron
variant ebbed and by solid labor market data.
Weekly initial jobless claims rose less than expected last
week, indicating the labor market is tightening, while layoffs
fell to a 28-1/2 year low in November.
Stocks have been whipsawed in recent sessions, starting with
a sharp sell-off in the shortened post-Thanksgiving holiday
session as the new variant was discovered. The S&P 500 had
tumbled in 3 of the prior 4 sessions for a decline of 4.1%
before Thursday's rally.
Despite the apparent easing concerns about the variant among
investors, U.S. President Joe Biden laid out his strategy to
fight the Omicron and Delta coronavirus variants over the
winter, including free and insurer-funded at-home COVID-19
testing and new requirements for international travelers.
In addition, U.S. Treasury Secretary Janet Yellen told the
Reuters Next conference the newest variant could slow global
economic growth by exacerbating supply chain problems and
depressing demand.
Industrials led S&P sector gains, thanks to a jump
of more than 7% in Boeing after China's aviation authority
issued an airworthiness directive on the plane maker's 737 MAX
that will help pave the way for the model's return to service in
China after more than 2-1/2 years.
Thursday's gain for the S&P 500 was its best one-day
percentage rise since Oct. 14 and the Dow had its best since
March 5. Market breadth was solid, with advancing issues
outnumbering declining ones on the NYSE by a 2.49-to-1 ratio; on
Nasdaq, a 1.79-to-1 ratio favored advancers.
Friday's session will be the key November payrolls report,
which expectations for 550,000 jobs and an unemployment rate of
4.5%.
Below is your premarket snapshot:
(Chuck Mikolajczak)
*****
BOFA SEES BUMPY RIDE FOR FUNDS HEAVY ON LARGE CAPS (1345
ET/1845 GMT)
With Fed Chair Jerome Powell finally giving up on describing
the U.S. inflation spike as "transitory", BofA Securities is
warning that actively managed mutual funds may be in for a bumpy
ride.
Mutual funds are 12% underweight "pro-inflation" stocks,
while 3% overweight stocks expected to fare poorly in an
inflationary environment, BofA says in a new research report.
Investors for years have favored Amazon, Apple
, Microsoft and other Big Tech companies that
have consistently driven Wall Street higher. Actively managers
remain overweight in those and other large stocks by 3%, and
underweight smaller stocks by 43%, a balance that BofA views as
risky.
During a period of inflation in the late 1960s, small caps
outperformed, and they have also done better than large caps in
times of stagflation, BofA says.
"We expect small caps will outperform large caps in 2022
(assuming no major resurgence in COVID): they are much less
extended on valuation, are domestically oriented, and stand to
benefit more from the services spending and capex recoveries,"
according to the report.
Small caps have seriously lagged large caps so far in 2021.
The S&P 500 has gained 22% year to date, versus an 11% rise in
the Russell 2000.
(Noel Randewich)
*****
BE LIKE A SCOUT AND MAKE THAT VOLATILITY PLAN (1310 ET/1810
GMT)
With U.S. equities swinging in all directions these days,
DataTrek Research is out with a note advising investors to come
up with a plan for even more severe volatility.
How do investors know if current market action forebodes a
bigger selloff and when it's "safe(ish)" to buy US stocks?
Co-founder Nicholas Colas is watching for a one-day S&P 500
decline of 3% or more - unheard of in 2019 or early 2020, of
course until Feb. 24th’s 3.4% drop.
Colas saw that as a sell signal, because along with the
benchmark's move the CBOE volatility index closed at 25 -
statistically too low. So far in 2021 we've had no 3+% down
days.
Colas suggests buying on 3% down day ONLY if the VIX closes
well above 44 that day, or preferably above 52.
If the VIX isn't at those levels Colas says: "it's better to
be a seller on such a day than a buyer."
"Even if you don’t like this approach, consider developing a
game plan for if markets get truly choppy," he says.
Colas saw Wednesday's Omicron induced sell-off as "terrible
price action for the first day of the month, which often sees
fresh money come into equities as asset owners rebalance
portfolios."
He's comparing current stock prices to February 2020 around
the time of the initial pandemic-related sell-off because
valuations in both cases are high, indicating a market that is
"ill-prepared for bad news."
With the current situation "resetting investor risk
tolerances" Colas says "no one can say with certainty how the
latest variant will unfold, so we need to listen to the market
and respect what the price action is telling us."
Sure on Thursday the VIX was trading at just 28.5 and the
S&P was up 1.4% so money mangers could potentially advise
sitting tight. But Colas, sounding more in favor of the scout's
motto to be prepared, says that's "pretty useless" in such a
skittish market.
"We’d rather prepare for the worst," he says. "Best case, we
won’t need the plan. Worst case, we’re ready."
(Sinéad Carew)
*****
SMART CITIES: THE TECH TIDE THAT LIFTS ALL BOATS? (1200
ET/1700 GMT)
The term "smart city" refers to a city where data and
digital technology inform administration, spurring radical
improvements in traffic management, power, water, waste,
transportation, healthcare and security and surveillance.
Technology is the top risk in this transition, primarily due
to the possibility of security and privacy breaches. One company
in this sector, Chinese video surveillance provider Hikvision,
even found itself on a U.S. trade blacklist https://bit.ly/3ddkYYh.
Nevertheless, some of the world's top tech companies are
offering services to help cities make the leap to being smart,
including IT services giant Tech Mahindra, whose chief
executive and managing director - CP Gurnani - spoke to the
Reuters Global Markets Forum https://refini.tv/3If2fKc this
week.
Gurnani is incredibly bullish on smart cities and believes
"the use case of 5G networks deployed for smart cities is here
to stay". He added that sectors including healthcare,
transportation and power can see the biggest benefits, although
officials and corporate service providers need to be vigilant to
be ahead of cybersecurity attacks.
Smart cities represent an opportunity lucrative enough for
the company, which has a market value of over $21 billion, to
pivot and orient itself towards, Gurnani told the forum.
He sees strong, symbiotic collaboration between businesses
and government and consequently, robust demand for his company's
offerings. Among the myriad uses of internet of things (IoT)
technology, Gurnani believes the best and the most popular uses
are in the area of telehealth.
A 2018 report by consultancy McKinsey reckons smart cities
can trim waste, reduce emissions and boost citizens' free time
by shaving as much as 30 minutes off the daily commute. More
details are in their study here- https://mck.co/3oerl3V
(Aaron Saldanha)
*****
FIVE SESSIONS OF OMICRON AND IT'S 3% DOWN FOR EUROPE (1148
ET/1648 GMT)
We've now had 5 sessions and a week of continuous newsflow
about the Omicron variant and the result is pretty grim for
European equities.
The pan-European STOXX 600 has lost about over 3% since last
Friday when the new strain of COVID-19 rocked global markets.
At one stage bourses on the old continent were heading
towards a 2% fall but they managed to recoup some losses in
afternoon trading and limited their dip today to about 1.1%.
On the bright side, so far this week, European stocks are up
about 0.5%, which means that dip buyers are still running a
profit from last Friday's lows.
Wall Street trading in positive territory didn't help much
with so many negative headlines about the spread of infections
and governments, such as Germany, implementing new social
restrictions.
UK authorities, about half an hour before the close in
London, announced 53,945 new COVID-19 cases, the highest daily
figure since July 17.
Meanwhile new cases of Omicron continued to be announced in
different countries and the EU's health agency said the variant
could be responsible for more than half of all COVID-19
infections in Europe within a few months.
(Julien Ponthus)
*****
THURSDAY DATA ASKS: WHAT DO YOU HAVE TO DO TO GET FIRED IN
THIS TOWN? (1055 ET/1555 GMT)
Thursday's one-two data punch drove home the severity of the
so-called 'great resignation,' in which firings (and workers)
are becoming scarcer than the latest X-Box on Christmas Eve.
The number of U.S. workers filing first-time applications
for unemployment benefits crept up to 222,000 last
week, solidly undershooting the 240,000 consensus.
The prior week's surprise dip was revised even lower, to
194,000.
The Labor Department's report offers further evidence that
employers are increasingly disinclined to hand out pink slips
amid a tight labor market, the result of booming demand
colliding with worker scarcity and low labor market
participation.
While this latest weekly claims number - which falls outside
the survey period for Friday's hotly anticipated November
employment report - is within the range normally associated with
healthy labor market churn, the size of the consensus miss could
be cause for concern for markets.
Labor scarcity, combined with stubbornly persistent supply
chain constraints, has helped erase the word "transitory" from
the Fed's inflation vocabulary as wages and prices continue to
rise, and could very well translate into rate hikes coming
sooner and faster than many had hoped.
But Ian Shepherdson, chief economist at Pantheon
Macroeconomics, sees the participation rate edging higher but
the effects of wage inflation are likely to linger.
"The labor market ought to become a bit less tight as
participation rises over the next few months," Shepherdson
writes. "But businesses will still be very wary of letting
people go unless they have no choice, because re-hiring will be
very difficult and/or expensive.
Ongoing claims, reported on a one-week delay,
dropped to 1.956 million, dipping below the 2 million mark for
the first time since the pandemic shuttered businesses and
brought the global economy to its knees.
Separately, pre-announced firings at U.S. firms plunged 35%
in last month to the lowest level in over 28 years.
That news comes courtesy of executive outplacement firm
Challenger, Gray & Christmas, whose oft-overlooked planned
layoffs report has gained growing scrutiny amid the
afore-mentioned worker drought.
November's 14,875 print was the smallest number of announced
firings since May, 1993. Year-to-date, layoffs have plummeted by
87% compared with last year.
"With the Omicron variant emerging and the unknowns that
come with its spread, coupled with the ongoing difficulty hiring
and retaining workers, it's no surprise job cuts are at record
lows," said Andrew Challenger, Senior Vice President of
Challenger Gray. "Employers are spread thin, planning best- and
worst-case scenarios in terms of COVID, while also contending
with staff shortages and high demand."
Market participants now train their gaze on tomorrow's jobs
report, which is expected to show a 550,000 increase in non-farm
payrolls and a 0.1 percentage point drop in the unemployment
rate to 4.5%.
Wall Street was indecisive in morning trading.
S&P 500 and the Dow were solidly green, but tech kept the
Nasdaq near the unchanged mark as investors favored value
over growth.
(Stephen Culp)
*****
THE "UNJUSTIFIABLE" ITALIAN DISCOUNT (1015 ET/1515 GMT)
The Omicron scare has put Milan stocks under intense selling
pressure, and the argument has been that tourism-dependent
economies like Italy will be hit harder by the restrictive
measures put in place to fight the latest infection wave.
The critical question now is whether Italian equities'
recent underperformance is justified or whether that has opened
up an opportunity to chip in at a bargain.
Jefferies see a possible over-reaction here for a market
that has stronger earnings momentum on the cheap. Italian stocks
trade at a 37% valuation discount, the highest in 9 years.
"The recent retracement in share prices due to the Omicron
scare has unjustly scarred the Milan index," they say.
"What has been missed by investors is the simply stunning
turn-around in the country's current account and basic balance
of payments. Moreover, there is a palpable 'feel good factor'
emanating from the data," they add.
"The Milan bourse is one of the few that we cover that has
consistently experienced positive earnings revisions over the
past twelve and three months. We remain Bullish," they conclude.
And Carlo Franchini, head of Institutional Clients at Banca
Ifigest in Milan, agrees.
"If we strip the index of the banking component, we are
still basically at 2008 levels... GDP is growing at levels not
seen in decades, and S&P has revised the outlook for Italy (to
positive): I'd say the astral picture is perfect," he says
"I find the discount at which the MSCI Italy trades versus
others is unjustifiable," he adds.
(Danilo Masoni)
****
AS BOND MARKET VOLATILITY RISES, CASH MAY NO LONGER BE TRASH
(1000 ET/1500 GMT)
Wild swings in U.S. bond markets are making it more
difficult to eke out profits with some trading strategies, and
may be increasing the allure of holding cash.
Many large macro funds have been burned by large price
swings in U.S. Treasuries as investors adjust for the prospect
that the U.S. Federal Reserve will raise rates sooner than
previously expected.
Repricing around this prospect has caught many investors
offsides and created large daily jumps in short-dated yields,
and increasingly choppy trading in longer-dated bonds and the
yield curve.
“For the first time in a couple of years…cash has pretty
good option value right now,” said Guy LeBas, chief fixed-income
strategist at Janney Montgomery Scott in Philadelphia.
“Given the degree of fundamental market volatility, the
massive positioning swings, what appears to be reduced dealer
willingness or ability to warehouse risk, you get some
surprisingly sharp moves that are not supported by changes in
policy or changes in economic data, and I want to be in a
position to take advantage of that. And that’s really where
cash’s option value comes from,” LeBas added.
(Karen Brettell)
*****
WHICH WAY DO WE GO? (0843 ET/1343 GMT)
U.S. equity index futures were mixed on Thursday, as
equities continue to be volatile as a lack of clarity around the
severity of the COVID-19 Omicron variant dominates.
Major averages on Wall Street suffered a late session
meltdown on Wednesday after the confirmation of the first case
in the U.S. and each closed below key technical support levels.
Nasdaq futures were pointed to a lower open for the
tech-laden index as Apple Inc shares were down more
than 3% in premarket following a Bloomberg report the company
has told parts suppliers demand for its iPhone 13 lineup has
slowed.
But the price-weighted Dow was looking at a higher open, due
in part to a boost from Boeing, which rose more than 5%
before the opening bell after China's aviation authority issued
an airworthiness directive on the 737 MAX that will help pave
the way for the model's return to service in China after more
than two-and-1/2 years.
Economic data showed weekly initial jobless claims rose less
than expected, while layoffs fell to their lowest since 1993.
Below is your premarket snapshot:
(Chuck Mikolajczak)
*****
FOR THURSDAY'S LIVE MARKETS' POSTS PRIOR TO 0830 EST/1330
GMT - CLICK HERE:
(Reporting By Sinéad Carew)