- Major U.S. indexes end red, though banks surge
- Materials weakest major S&P sector; energy leads gainers
- Dollar edges up; crude rallies; gold and bitcoin fall
- U.S. 10-Year Treasury yield rises to ~1.73%
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MAJOR U.S. INDEXES END RED, BUT BANKS ON FIRE (1605 EST/2105 GMT)
After a jittery start to Thursday, U.S. stocks stabilized a little over 30 minutes into the trading day, and rallied.
There was some heartening action earlier, however, after the Nasdaq's main indexes tested and held support at their December lows.
Indeed, shortly after 10 AM, the Nasdaq Composite (.IXIC) hit a low of 14,914.871, which was inside a zone defined by its Dec. 3 and Dec. 20 lows in the 14,931/14,860 area:
At that point, the Composite was down 8% from its Nov. 22 intraday record high. The Nasdaq 100 (.NDX) and NYSE FANG+TM Index (.NYFANG) exhibited similar action as they also flirted with their December lows. The NDX finished just below flat, while the NYFANG actually managed a gain of about 0.6% on the day. read more Chip stocks (.SOX) also ended higher.
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Even with the Nasdaq's reversal, however, value (.IVX) still outperformed growth (.IGX) as banks surged. The S&P Banks index (.SPXBK) rallied more than 2.5% as U.S. Treasury yields continued their ascent. The SPXBK is on pace for its biggest weekly gain since early-February 2021. Value remains on track for its biggest weekly gain vs. growth since November 2020.
Now markets will turn their focus to Friday's December jobs report. Expectations call for 400k on the headline jobs number, and an unemployment rate of 4.1%.
Ahead of this, the U.S. 10-Year Treasury yield is on track to rise for a fifth-straight day. It last rose five days in a row in October 2021. It last gained six-straight days in January of last year.
Here is Thursday's closing snapshot:
OMICRON HURTING SPENDING, FOR NOW (1350 EST/1850 GMT)
Data is in showing that Omicron, the latest variant of the coronavirus, is putting a damper on consumer spending, but Peter McCrory in JPMorgan's economic and policy research department seems optimistic.
McCrory cites surging Omicron cases for "a discernible drag" in consumer spending measured by Chase credit card data and weakness in high frequency economic activity indicators.
But he suspects "the hit to economic activity will be less severe than during earlier waves and relatively short-lived with much of the drag concentrated in December 2021 and January 2022."
In particular, McCrory has found turbulence in spending on air travel, lodging and other travel and entertainment through December with airline spending now at a little more than 40% below the pre-pandemic trend compared with 20% below before Thanksgiving.
And the pattern also applied to lodging and other travel and entertainment spending in differing degrees while more broadly, December holiday spending gains were weaker than expected compared with previous years' patterns with "a slowdown that emerged early in the month and persisted throughout."
McCrory also cited mobility indexes such as OpenTable diners, air travel data weakening on net in the latter half of December as evidence of the Omicron effect.
So why the hope for a short-lived impact?
With data so far suggesting Omicron is more contagious but less virulent, McCrory sees this combination limiting behavioral responses to rising cases. And with a labor market that is much tighter than at the outset of the virus in early 2020, employers may "hoard labor and even continue hiring" even as consumer demand slumps.
Also, with South Africa's data implying a case peak in mid-to late January, the outbreak may be over sooner rather than later.
Also, the jump in cases hasn't produced a corresponding spike in deaths. So even as Omicron transmission may be more difficult to avoid, almost 2 years into COVID-19 drudgery, people may simply have much less inclination to change their behavior to try to avoid it. The lower health risk may enhance this disinclination, McCrory suggests.
GOODBYE TINA, DON'T SLAM THE DOOR ON YOUR WAY OUT AS FED ERA ENDS (1229 EST/1729 GMT)
Mike O'Rourke, chief market strategist at JonesTrading, recently commented that he thinks the political ramifications of inflation have taken away the FOMC's flexibility that has allowed it to be patient and cautious in removing accommodation.
Therefore, there should be "no doubt that financial conditions will either be tighter in a year or asset prices will have significantly corrected."
In his latest research note, put out after market close last night, O'Rourke says ”That perspective was crystallized in the December FOMC Minutes released today and manifested itself in U.S. trading."
As he see it, the minutes indicated the potential for the Fed to go from the tapering announcement to commencing rate hikes and balance sheet contraction in the span of just 6 months.
Additionally, O'Rourke thinks the minutes provided a clear indication that the FOMC believes the economy to be very strong and well positioned to start the normalization, and this is why speculation has pulled the first Fed Funds increase forward to as early as March.
However, O'Rourke does have his doubts and says he would not be surprised if that timing gets pushed back in Fed jawboning.
Nonetheless, if the FOMC quickly flips from QE to interest rate increases and balance sheet contraction, O'Rourke thinks the equity market should have a much more severe reaction.
"This is the end of an era, one of the most generous eras ever experienced by U.S. equities. For years, markets have placed exorbitant multiples on growth stocks because 'there was no alternative.' Seemingly overnight it is beginning to appear as if there will be ample alternatives by year end."
THURSDAY DATA: HOW BIG AN ECONOMIC PARTY-POOPER IS OMICRON? (1110 EST/1610 GMT)
A data banquet awaited market participants on Thursday, the day after the Fed revealed itself to be more hawkish than expected and a day before a hotly-anticipated end-of-year employment report.
Taken together, the indicators expose an economy struggling to return to an even keel just as the unwelcome Omicron COVID variant elbowed its way to into the headlines.
The number of U.S. workers filing first time applications for unemployment insurance (USJOB=ECI) unexpectedly inched up by 7,000 last week to 207,000, according to the Labor Department.
The consensus forecast saw the number edging in the other direction, to 197,000.
Since mid-November, the number has hovered near the 200,000 mark, considered by many the lower end of a range associated with healthy labor market churn.
"We may still see some rise in claims due to the latest wave of covid cases, but over time we expect claims will more consistently hover around the 200k mark," writes Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
It's unclear whether the increase reflects spiking infections of the Omicron COVID variant, in fact Omicron could be holding those numbers down.
"The initial impact likely is to make firms even more keen to keep people, as absenteeism due to Covid rockets," suggests Ian Shepherdson, chief economist at Pantheon Macroeconomics.
The increase could also herald a return to normal for the jobs market, with the worker drought easing, and employers more willing to hand out pink slips.
Case in point, pre-announced layoffs jumped by 28.1% in December, according to executive outplacement firm Challenger, Gray & Christmas.
The Challenger Gray report (USCHAL=ECI) shows 19,052 layoffs were announced last month, up 28.1% from November, but down 75.3% year-over-year and capping the lowest annual total on record.
Notably, a chunk of December's increase is attributable to COVID vaccine refuseniks, a phenomenon which is likely to continue.
"January may see more cuts due to workers' refusal to get vaccinated, since many companies imposed deadlines for this month," said Andrew Challenger, the firm's senior vice president.
Indeed, the healthcare sector accounted for the largest slice of last month's announced job cuts, as OSHA rules requiring hospital workers to be jabbed against COVID kicked in on Jan. 4.
On the bright side, job cuts in customer-facing services sector, which bore the brunt of social distancing mandates to contain the disease, plunged 98.1% in 2021.
Speaking of the devil, the U.S. services sector expanded at a slower pace last month.
The Institute of Supply Management's (ISM) non-manufacturing purchasing managers' index (PMI) (USNPMI=ECI) posted a reading of 62, a 7.1-point monthly drop and a steeper decline than analysts expected.
A PMI number above 50 signals a monthly increase in activity.
But while momentum was lost in business activity, new orders and employment, the headline print remains well above pre-pandemic levels and represents the sector's 19th consecutive month of expansion.
On the downside, the prices paid component edged up, further evidence of supply chain challenges.
"The rate of growth remains strong for the services sector," says Anthony Nieves, chair of ISM's services business survey committee.
However, Nieves adds that the survey's "respondents have indicated that they continue to struggle with inflation, supply chain disruptions, capacity constraints, logistical challenges and shortages of labor and materials."
In another report, the trade gap gaped wider than analysts predicted in November as imports touched an all-time high. read more
Commerce Department data shows the deficit between the value of imports from U.S. trading partners and domestic goods and services exported abroad (USTBAL=ECI) jumped 15.6% to $80.2 billion in the penultimate month of 2021.
Breaking it down, a 4.6% jump in imports handily offset a more languid 0.2% increase in exports, as the U.S. demand recovery continues to outpace that of the rest of the world.
The closely-watched U.S.-China goods trade gap narrowed to $32.3 billion.
"Overall, trade flows have recovered pandemic losses with both exports and imports now higher than pre-crisis levels despite supply chain disruptions and logistical challenges," says Rubeela Farooqi, chief economist at High Frequency Economics. "New virus outbreaks could be a near-term headwind if they weigh on global demand and further aggravate supply chains."
Finally, the Commerce Department also reported that factory orders (USFORD=ECI) gained steam in November, growing 1.6% and building on October's upwardly-revised 1.2% increase.
Wall Street is muted in late morning trading as investors nursed their Fed hangovers and girded their loins for Friday's employment report.
U.S. STOCKS QUICKLY TURN HEAVY (1015 EST/1515 GMT)
The S&P 500 (.SPX) lost its bid after the first 15 minutes or so of the trading day, and is now red. This as interest rate-sensitive growth names remain heavy from the Federal Reserve's hawkish signals.
With this, the U.S. 10-Year yield , now around 1.73%, continues to flirt with its March/April 2021 highs.
Banks, however, are proving resilient. The S&P 500 Banks index (.SPXBK) is gaining, and on track for its biggest weekly rise since late-June of last year.
Here is where markets stand in early trade:
AMD, TESLA, NVIDIA MOST POPULAR RETAIL PICKS IN LATEST WEEK (0921 EST/1421 GMT)
Long time retail favorites - chip makers AMD (AMD.O) and Nvidia and electric-car maker Tesla Inc (TSLA.O) - continued to be the most popular single stock purchases among small-time investors in the final week of 2021, data from JPMorgan's weekly retail flows report showed.
AMD attracted $248 million in retail flows this past week, while Nvidia locked in $173 million and Tesla $115 million.
Indeed, AMD, TSLA and NVDA were among the top 10 most traded stocks by Fidelity's customers.
However, retail flows in December were concentrated in ETFs versus single stocks and S&P 500 continued to dominate market share last week, JPMorgan data showed.
There was also growing evidence of rotation in terms of sectors, JPM strategist Peng Cheng said energy and financials showed strong demand and ETF tracking 7-10 Year Treasury Index (IEF.O) were sold the most in the latest week.
In fact, two ETFs managed by Cathie Wood-led ARK Invest - Next Generation Internet ETF (ARKW.P) and Genomic Revolution suffered meaningful retail selling, according to Cheng.
But the retail buying appetite at large showed no signs of abating in the new year with Jan. 4 recording an estimated $1.4 billion of retail market order imbalance, the second highest ever observed after Black Friday, Cheng added.
FANGS LOOK FRAGILE (0900 EST/1400 GMT)
With the market taking a bite out of growth stocks read more , tech titans were torn apart on Wednesday. Indeed, the NYSE FANG+TM Index (.NYFANG) had more than 3% sliced off and finds itself, once again, flirting with chart support.
NYFANG is equal-weighted and includes 5 core FAANG stocks: Facebook (FB.O), Apple (AAPL.O), Amazon.com , Netflix and Alphabet (GOOGL.O). It also includes another 5 actively-traded technology/growth stocks: Alibaba , Baidu , Nvidia (NVDA.O), Tesla (TSLA.O) and Twitter (TWTR.N).
NYFANG topped in early November right at a resistance parallel derived from its May 2021 low:
In the wake of a more than 12% tumble, the index bottomed at the support line from its May low, which was backed up by the 200-day moving average (DMA).
After retracing about two-thirds of that decline, NYFANG slid again, this time suffering a one-day closing violation of both the support line, and the long-term moving average, on Dec. 20.
Nevertheless, the index was able to mount another sharp bounce. However, the quick reversal back up failed to reclaim the 50-DMA, leading to this week's swoon.
Now, the index is once again testing the support line, at around 7,215, the 200-DMA, which ended Wednesday around 7,135, and the December lows, in the 7,086/7,000 area. Traders will be watching to see if this zone can remain resilient. read more
Breaking this support, including two-straight closes below the 200-DMA, can suggest much greater downside risk given the October trough was at 6,771. The 2021 lows were in the 6,106/6,086 area. A decline to this area would be around a 25% collapse from the high.
NYFANG will need to reclaim its 50-DMA, and its early January high, at 7,604.51, to suggest pressure is off the downside.
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