LIVE MARKETS New Year's resolutions might include small caps and real estate

  • DJI edges up, S&P 500 ~flat, Nasdaq falls; chips weak
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  • U.S. 10-Year Treasury yield dips to ~1.48%

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As 2021 nears its end, Jason Pride, chief investment officer of Private Wealth at Glenmede, has some views on how investors should be positioned going into 2022. He believes they should maintain a "modestly overweight risk posture, with selective emphasis on small caps and global real estate."

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According to Pride, in the wake of another strong year, equities do not appear particularly cheap heading into 2022. In fact, he says that using Glenmede's Global Expected Returns model, that a balanced equity portfolio, based on geographic and market cap exposure, currently resides at the 81st percentile of longer-term valuations.

He notes that U.S. large cap growth appears "notably extended" at the 98th percentile, while large cap value and small cap appear "more favorable" by comparison, at the 81st and 73rd percentiles."

With this, Pride argues that heading into the new year, investors should consider tilting equity allocations in favor of small caps. For one, he says that small caps have a historical record of robust returns in the years after the official end of recessions. Additionally, he says small caps have outperformed CPI inflation in every decade since the 1930s, likely reflecting their ability to be "nimbler around shifting price pressures."

Regarding risk-bearing asset classes, Pride says few seem more attractive than real estate. He believes that the group stands to benefit from a number of macroeconomic cross-currents including the economic recovery, and higher occupancy rates. Additionally, he says REITS have historically been among top performing assets during periods of higher-than-normal inflation, making them a "compelling solution for diversified portfolios."

(Terence Gabriel)



With millionaires and telescopes having been launched into space in recent days, one wonders if they've encountered U.S. home prices, which are still enjoying their historically lofty orbit.

Home prices in the United States grew at a break-neck 19.1% annual rate in October, a 0.6 percentage point deceleration from the previous month.

The Core Logic/Case-Shiller 20-city composite (USSHPQ=ECI) delivered a year-over-year print of 18.4%, just a hair below consensus and marking a 0.7 ppt slowdown from the previous month.

Despite the less-white-hot reading, Craig Lazzara, managing director at S&P DJI helpfully outpoints it was still the fourth-highest reading in the index's 34-year history.

Regarding the constituents of the 20-city composite, Lazzara says "October's increase ranked in the top quintile of historical experience for 19 cities, and in the top decile for 17 of them."

Persistently hot home price growth is the result of an ongoing demand surge amid a COVID-prompted stampede for the suburbs, which has driven supply of homes on the market to record lows.

"Inventories remain scarce, but eroding affordability has priced some buyers out of the market," writes Nancy Vanden Houten, lead economist at Oxford Economics. "As a result, prices appear to be adjusting."

So what's in the cards for home prices in the coming year?

"More data will be required to understand whether this demand surge represents an acceleration of purchases that would have occurred over the next several years, or reflects a more permanent secular change," Lazzara adds.

Phoenix led the pack once again, with home prices jumping an astounding 32.3% from last year, with Tampa and Miami posting the second and third hottest growth at 28.1% and 25.7%, respectively.

The graphic below compares annual growth of the 20-city composite with the 'traffic of prospective buyers' component of the National Association of Home Builders' sentiment index:

Case Shiller

Speaking of builders, they continue to tackle scarcity of materials and available lots as they scramble to keep pace with the demand tsunami, evidenced most recently by the 12.4% rebound in new home sales as reported by the Commerce Department last Thursday.

As such, while the sector has contended with the weight of its own success as many potential buyers being priced out of the market, housing stocks - the most forward-looking indicator of them all - are thriving.

Over the last 12 months, the Philadelphia SE Housing index (.HGX), and more strikingly, the S&P 1500 Home Building index (.SPCOMHOME) have handily outperformed the broader market.

Rebased to a year ago, the HGX and SPCOMHOME have posted 31.3% and 42.4% gains, compared with the S&P 500's still-impressive 28.3% surge over the same time period, as seen below:

Housing stocks

Wall Street appears to be following the data's lead, with the S&P 500 (.SPX) and the Dow Industrials (.DJI) continuing their upward treks on Tuesday.

The Nasdaq (.IXIC), weighed down by tech (.SPLRCT), is just below the flatline.

(Stephen Culp)



The S&P 500 (.SPX) is trading at a record high on Tuesday, building on a four-day rally amid thin trading volumes, with investors unshaken by Omicron-driven travel disruptions and store closures.

Meanwhile, with its early gain, the Dow Jones Industrial Average (.DJI) is on track to end above its 36,432.22 November 8 record close. The DJI's intraday record high, also on Nov. 8, stands at 36,565.73.

The Nasdaq Composite, (.IXIC) is around 1% shy of its Nov. 19 record close of 16,057.437. Its record intraday high was on Nov. 22 at 16,212.229.

Of note, at 7.9 billion shares, total volume on U.S. exchanges on Monday was the lowest of the year.

Here is your early-trade snapshot:


(Terence Gabriel)


S&P 500: ECHOES FROM 1929 AND 2000? (0900 EST/1400 GMT)

The S&P 500 (.SPX) is on track to rise nearly 28% in 2021. With this, its rolling three-year gain now stands at 91%. That's it's best such rise since a 98% advance in 1999, which was, of course, just prior to the bursting of the tech-bubble in March 2000.

As 2021 draws to a close, the SPX is nearing a 92-year log-scale resistance line, which has the potential to be a formidable barrier given that it is based off of the index's 1929 and 2000 peaks read more :


On a monthly, basis, this line is now around 5,150, or roughly 7% above current levels. Since it is ascending around 25 points per month, it will reside around 5,225 in March 2022, or roughly 9% above current levels. read more

Additionally, monthly momentum is lagging. Since peaking at an all-time high in January 2018, the RSI is failing to confirm the SPX's fresh record highs:


In fact, the current 47-month divergence is just slightly longer than the 45-month period from what was then the all-time high monthly RSI reading in June 1996 to the S&P 500's March 2000 top.

Thus, given the extent of the S&P 500's three-year advance, the resistance line, and the momentum divergence, early 2022 may be shaping up to be a critical test for the benchmark index.

(Terence Gabriel)



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Terence Gabriel is a Reuters market analyst. The views expressed are his own

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