* S&P 500 and Nasdaq end up, Dow closes down
* Real estate is biggest S&P sector loser, energy up most
* STOXX closes down 1%
* Crude, dollar, Bitcoin up; gold down
* U.S. 10-yr Treasury yield ~1.79%
Jan 14 - 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
WALL ST POSTS LOSSES FOR 2ND WEEK (1610 EST/2110 GMT)
The S&P 500 and Nasdaq ended a volatile
session higher on Friday, but all three major U.S. stock indexes
posted declines again for the week.
The Dow underperformed the other two major indexes,
closing lower on the day, in a reversal from the recent trend.
Since Dec. 31, the S&P 500 is down about 2.1%, while the Nasdaq
is down 4.8% and the Dow is down just 1.2%.
Investors have been rotating out of growth stocks and into
more value-oriented shares that tend to do better in a higher
interest rate environment. But the S&P 500 growth index
ended up 0.2% on the day, while the value index dipped
0.1% even as U.S. Treasury yields rose on Friday.
Weighing on the Dow were shares of big banks, including
JPMorgan Chase. Its shares fell 6.1% after it reported a
weaker performance at its trading arm, although the company beat
earnings expectations for the fourth quarter.
That and mixed results from other big banks made for a
sloppy start to the fourth-quarter U.S. earnings period. The S&P
500 bank index, which has been hitting fresh record
highs, fell 1.7% on the day.
Disappointing U.S. retail sales data added to investor
uncertainty.
Here is the closing market snapshot:
(Caroline Valetkevitch)
****
MARCH IS STILL A LONG WAY AWAY FOR FED (1330 EST/1830 GMT)
General market consensus is that the Federal Reserve will
begin its tightening cycle as soon as March, with a strong
possibility of four hikes on deck in 2022.
But two months is a very long time, why Lee Ferridge, head
of macro strategy for North America at State Street Global
Markets, thinks the market could be getting ahead of itself.
"There are a lot of moving parts before we get (to March),
to be so confident of a move in March two months ahead is a
little overpriced," Ferridge told Reuters on Thursday.
He chalks this up to uncertainty around how much the
Omicron-led jump in coronavirus cases dampens economic activity,
as well as data showing the labor market has not completely
recovered from the Covid-19 hit.
U.S. jobless claims recently increased more than expected,
and Ferridge points to a decline in real average hourly earnings
on a yearly basis as further evidence of a shaky labor market,
which could indicate there's still a way to go to reach maximum
employment.
"Because we are fully priced for March and have about four
hikes priced in for 2022, the obvious risk is that we take out
some of that pricing."
PGIM also sees the pace of the Fed's expected hikes falling
short of market pricing, although they anticipate the first rate
increase in March or May.
"The Fed may ultimately find it prudent to slow down its
pace of tightening later this year, particularly if it is also
launching an early start to quantitative tightening," PGIM
economist Ellen Gaske wrote in a Thursday note.
The best way to play this "overconfident" trade is through
the dollar, especially if the Fed does slows the pace of rate
hikes when it launches quantitative tightening, according to
Ferridge.
"A lot of people started the year overweight the dollar
based on the normalization of policy and it's not reacting in
the right way, there could be more to go," he says.
(Lisa Mattackal)
*****
BULLISH SENTIMENT SLIDES TO FOUR-MONTH LOW: AAII SURVEY
(1330 EST/1830 GMT)
Bullish sentiment has sunk to a four-month low while the
number of investors who describe their outlook for stocks as
"bearish" and "neutral" has increased, the latest survey from
the American Association of Individual Investors shows.
Optimism was last lower on Sept. 16 as expectations stock
prices will rise the next six months slid 7.9 percentage points
to 24.9%, the AAII Sentiment Survey taken in the seven-day
period ending Wednesday showed.
Bullish sentiment is below its historical average of 38.0%
for the eighth straight week while expectations stock prices
will fall the next six months increased by 5.0 percentage points
to 38.3%, above a 30.5% historical average for bearishness.
Expectations that stock prices will stay essentially
unchanged over the next six months increased by 2.9 percentage
points to 36.8%, the sixth consecutive week that neutral
sentiment is above its 31.5% historical average.
The coronavirus, including the uneven return to normalcy,
monetary and fiscal stimulus and inflation are the big concerns
regarding the outlook for stocks. Other factors include
earnings, valuations and the Biden administration's initiatives.
(Herbert Lash)
*****
WALL ST FALLS, LED BY 1% DOW DROP (1250 EST/1750 GMT)
Major U.S. stock indexes are lower in afternoon trading
Friday, led by a more than 1% decline in the Dow, while
Wall Street's fear gauge, the Cboe Volatility index edged
higher.
JPMorgan Chase is the biggest drag on the S&P 500
. The bank's stock is down more than 6% after it reported
a weaker performance at its trading arm, though the company beat
earnings expectations for the fourth quarter.
Mixed results from other big banks gave a disappointing
start to the fourth-quarter U.S. earnings season. The S&P 500
bank index, which has been hitting fresh record highs,
is down 2.3% on the day.
Here is the early afternoon U.S. market snapshot:
(Caroline Valetkevitch)
*****
EUROPE WEEK 2: 15% GAP BETWEEN TECH AND BANKS (1150 EST/1650
GMT)
The session ends with a second straight week of losses for
European stocks and a 1.4% dip since the beginning of the year.
While the performance of the pan-European STOXX
isn't that spectacular, the gap between winners and losers truly
is.
Early 2022 is a brutal illustration of how an early
inflation/monetary tightening cycle can unfold for stocks.
Consider this: European banks are up 10% so far in 2022
while tech stocks are down 5.8%: that's a gap of over 15% in 2
weeks.
While many central banks are expecting - and hoping - that
inflation will peak later this year, the sectors which are
typically boosted by rising prices are thriving.
In these early days of 2022, oil & gas is up 9.2%, miners
gained 7.6% and insurers rose 5.9%.
Autos are also up a handsome 8% as the hype surrounding EVs
is very much a thing for European investors.
It's quite a different story of course for defensive sectors
such as healthcare, which already is down close to 6%.
Here are how the sectors of the STOXX 600 fared today and so
far this year:
(Julien Ponthus)
*****
BANKING ON IT: VALUE STOCKS TOP PICK FOR THE LONG TERM (1130
EST/1630 GMT)
With inflation readings at multi-decade peaks, bank stocks -
which perform well in inflationary periods - are high on
investors' lists as they are expected to benefit from rising
lending margins due to higher yields.
Dave Harden, chief investment officer of Summit Global
Investments, picks value stocks over growth in the long-term and
predicts a "tremendous year" for U.S. banking stocks in 2022 -
despite the tumble they took on Friday.
The S&P 500 banking sector gained 9.4% last week as
Treasury yields rallied on rate hike expectations compared to a
1.9% fall in the benchmark index. Harden expects at least
three Federal Reserve hikes with above a 60% chance of a fourth.
Retail investors have also boosted their exposure to
lenders' stocks ahead of the earnings announcements, according
to Vanda Research's weekly report on retail flows.
Financials were among the most sought after equity sectors
relative to recent history, with small-time investors picking up
$289 million over the past week versus an average of $190
million over the past two years, the report said earlier in the
week.
Summit's Harden told the Reuters Global Markets Forum on
Thursday he sees JPMorgan and Bank of America
continuing to outperform in 2022. Outside banking, he says
Facebook owner Meta Platforms is a contrarian position he
holds.
"People seem to be haters here. Meta Platforms is very cheap
-- bottom quartile -- compared to other large Tech names. But
their growth is above average and their margins are top
quartile....I know this is not popular but it's time."
(Sanjana Shivdas, Aaron Saldanha)
*****
RELEASE THE HOUNDS - ER, DATA: A FRIDAY ECON WRAP-UP (1100
EST/ 1600 GMT)
A torrent of data was released on market participants like a
pack of dobermans on Friday, chock full on mostly unpleasant
surprises which provided fresh reminders that U.S. consumers and
the economy are still being dogged by Omicron, hot inflation and
a tangled supply chain.
Receipts and U.S. retailers unexpectedly dropped
by 1.9% last month, according to the Commerce Department.
Analysts expected a flat reading.
Line-by-line, the decline was broad based, with non-store
retailers (which includes online and catalog), and department
stores suffering the biggest declines, tumbling by 8.7% and
7.0%, respectively.
The causes of this unpleasant surprise are largely
inter-related. Spiking COVID cases kept shoppers at home, wile
pandemic-related supply issues kept goods scarce and prices
high.
"December was a rough month for the American consumer,"
writes Anu Gaggar, global investment strategists at Commonwealth
Financial Network. "Between higher prices, empty shelves,
consumers sick from omicron, and holiday shopping pulled
forward, retail activity declined even more than expected, and
November numbers were also revised lower."
Additionally, many consumers - in reaction to those supply
challenges - seem to have started their holiday shopping earlier
than usual, benefiting the October number at December's expense.
Core retail sales, which strips out autos, gasoline,
building materials and food services, and is the closest proxy
for the personal consumption component of GDP, posted an even
bigger unexpected drop, plunging by 3.1%.
That is particularly dour news, considering the fact that
the consumer shoulders about 70% of U.S. economic growth.
Speaking of the consumer, attitudes have been following
mercury levels lower this month.
The University of Michigan's preliminary take on January
Consumer Sentiment delivered a print of 68.8, below
the even 70 consensus.
Attitudes regarding the current situation edged lower, but
pessimism regarding near term expectations did the most damage.
Inflation weighed heaviest on consumers' minds in the
opening weeks of 2022, with near- and long-term inflation
expectations heating up to 4.9% and 3.1%, respectively.
"While the Delta and Omicron variants certainly contributed
to this downward shift, the decline was also due to an
escalating inflation rate," writes Richard Curtin, chief
economist with UMich's Surveys of Consumers. "Three-quarters of
consumers in early January ranked inflation ... as the more
serious problem facing the nation."
Which provides a tidy segue.
The prices Americans pay for imported goods also
defied consensus by inching 0.2% lower in December according to
the Labor Department.
The falling cost of petroleum prices was largely responsible
for the decline, adding another voice to the growing chorus that
the stubbornly persistent inflation wave, which has moved the
Federal Reserve to shorten its timeline for tightening its
COVID-era monetary policy, is at or past its peak.
Year-on-year, import price growth cooled down, shedding 1.3
percentage points to a still-blistering 10.4%.
However, Mahir Rasheed, U.S. economist at Oxford Economics,
also expects "import prices should begin to unwind in Q2 with
energy prices moderating and domestic demand cooling as the Fed
pivots to tightening monetary policy."
Despite the December decline, the series remains hotter that
other major indicators, all of which continue to cruise at an
altitude far above the Fed's average annual 2% inflation target.
Another unwelcome surprise arrived courtesy of the Federal
reserve's industrial production report, which showed
output unexpectedly slipped by 0.1% in the last month of 2021.
Manufacturers disappointed even more, with factory output
dropping 0.3% in defiance of the 0.5% growth economists
projected.
"We expected a soft headline, because wamer-than-usual
weather reduced demand for heating energy, and natural gas
extraction plunged by 7.9%," says Ian Shepherdson, chief
economist at Pantheon Macroeconomics. "But the softness in
manufacturing is disappointing, and it can't all be blamed on
the ongoing supply problems in the auto sector, where production
fell 1.3%."
Capacity utilization also zagged where it was
expected to zig, inching nominally lower to 76.5% instead of
rising to 77%.
Even so, capacity use, a measure of economic slack, remains
slightly above where it was just before a global health crisis
threw a monkey wrench into the works.
Taken together the Fed's report is a stark reminder of the
sorry state of the global supply chain, which continues to limp
along under the weight of booming demand, scarcity of materials
and lack of workers.
Lastly, in more ancient news, the value of goods in the
store rooms of U.S. businesses increased by 1.3% in
November, bucking the trend by hitting the expectations bulls
eye.
The Commerce Department data bodes well for fourth quarter
economic growth, hinting that private inventories' contribution
could stay out of the negative column, where it sat in the first
half of 2021.
The data wolves, along with a mixed set of big bank earnings
from JPMorgan Chase, Citigroup, and Wells Fargo
put investors in a selling mood in morning trading.
All three major U.S. stock indexes were red, with cyclicals
and economically sensitive transports down the most.
(Stephen Culp)
*****
BANK STOCKS STUMBLE AS Q4 EARNINGS GATE OPENS (1005 EST/
1505 GMT)
Some of the biggest U.S. banks kicked off earnings season on
Friday with a sickening thud for investors with JPMorgan
tumbling 4.8% and Citigroup down 2.4% after their reports.
Only Wells Fargo shares were in demand with a 1.4% gain.
The S&P 500 bank index was last trading down 2.0%
on the day after hitting an intraday record high in the previous
day's session. It ended up Thursday 10.4% so far for 2022 after
rising 32.3% in 2021.
While JPMorgan - the largest U.S. bank that is a barometer
of the economy's health - beat Wall Street's expectations even
as it reported a 14% profit decline due to a slowdown in trading
which offset a stellar performance in investment banking.
Trading revenue fell 13% while investment banking revenue
surged 28% thanks to a bumper deal year.
UBS analyst Erika Najarian wrote in a note ahead of the
conference call that JPM's slides show its outlook for $77
billion in expenses is 6% above consensus.
"This does not fit the "beat and raise" narrative investors
have for banks in 2022," she said.
Citigroup reported a 26% slump in fourth-quarter profit on
Friday as it took a hit from higher expenses and weakness at its
consumer banking unit.
However, Wells Fargo beat analyst profit estimates in the
quarter as a rebound in U.S. economic growth encouraged more
customers to take loans and the bank kept a tight lid on costs.
Still, the news made investors anxious about other big banks
due to report results next week with Morgan Stanley
falling 2.6% and Goldman Sachs off 2.4%.
(Sinéad Carew)
*****
WALL STREET POISED TO REMAIN RISK-OFF (0915 EST/1415 GMT)
Stock futures on Wall Street traded lower on Friday after
U.S. retail sales dropped in December instead of staying flat
and banking results at the start of earnings seasons failed to
provide a reason for budging the risk-off sentiment.
Retail sales fell 1.9% after rising 0.2% in November, the
Commerce Department said, while economists polled by Reuters had
forecast retail sales unchanged.
Shares of JPMorgan Chase & Co slid after it posted a
14% decline in fourth-quartre earnings due to a slowdown in the
company's trading arm. But results sailed past analysts'
estimates on stellar results from its investment banking unit.
Citigroup also slid after the the bank reported a 26%
drop in quarterly profit. But the company exceeded market
expectations as strong gains in its investment banking business
cushioned the blow from higher expenses.
But shares of Wells Fargo & Co gained in pre-market
trade after posting a greater-than-expected rise in
fourth-quarter profit.
Futures for the Dow Industrials, S&P 500
and the Nasdaq were all down about 0.8% prior to the
opening bell.
Here's a snapshot the market:
(Herbert Lash)
*****
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