LIVE MARKETS Small caps vs large caps in 2022: Drum roll please...

  • DJI, S&P 500 edge up; Nasdaq rises; small caps, FANGs outperform
  • Healthcare leads S&P 500 sector gainers; staples weakest group
  • Dollar, bitcoin, gold, crude all rise
  • U.S. 10-Year Treasury yield dips to ~1.52%

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Nicholas Colas, co-founder of DataTrek Research, is out with some predictions for how he thinks the small cap versus large cap duel might play out in the coming year.

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Of note, the S&P 500 (.SPX) is up roughly 28% so far this year. That is its biggest yearly gain since a near 29% rise in 2019. Meanwhile, the small-cap Russell 2000 (.RUT) is up about 15% so far in 2021, which is its smallest increase over the last three years.

Colas believes 2022 will "NOT" be a bad year for U.S. large cap stocks. In fact, he says that there’s only an 18% chance that 2021’s strong S&P 500 return will end in tears in 2022.

Next year, "the S&P may be down 5 percent, up 5 percent, or up more than 10 percent. We believe the last outcome is the most likely, but that’s a less important observation than that there’s limited risk of a serious decline."

On the other hand, Colas thinks small cap stocks have their issues, and the Russell 2000 will underperform the S&P 500 next year. He notes that about a third of the Russell is unprofitable and that the asset class needs lower U.S. corporate high yield spreads over Treasuries to outperform large caps. However, he cautions that spreads are already at or near their historical lows.

"There will be some good trades in US small caps next year (there always are …), but it is hard to like the Russell over the S&P 500 without the catalyst of lower high yield corporate spreads."

(Terence Gabriel)



Investors kicked off the penultimate trading day of a volatile year on Thursday with a duet of anodyne, slightly better-than-expected indicators.

The number of U.S. workers filing first-time applications for unemployment benefits (USJOB=ECI) unexpectedly dipped to 198,000 in the week leading up to Christmas, edging below the 200,000 mark for the third time in two months. read more

The surprise decrease - analysts expected the Labor Department's report to show a nominal uptick to 208,000 - provides further evidence of a worker drought as a fresh wave of COVID infections keeps even more workers home and convinces employers to delay handing out pink slips.

The data has now drifted below the level commonly associated with healthy labor market churn.

Job openings touched an all-time high of 11 million in October, prompting businesses to sweeten the pot by hiking wages, which in turn has supported consumer spending.

But to what extent is the data affected by holiday noise?

"The claims data may be more volatile in the upcoming weeks due to the seasonal adjustment process," writes Nancy Vanden Houten, lead U.S. economist at Oxford Economics. "But looking past that noise, we expect claims to remain around 200k as layoffs remain low amid tight labor market conditions."

Ongoing claims (USJOBN=ECI), reported on a one-week lag, also defied consensus by dropping to 1.716 million, returning the number to pre-pandemic levels after soaring as high as 23.128 million when measures to contain the coronavirus shuttered businesses and prompted the steepest, shortest recession in history.

Jobless claims

A separate report showed midwest factory activity gained a little steam this month.

The Chicago purchasing managers' index (PMI) (USCPMI=ECI), courtesy of MNI Indicators, delivered a print of 63.1, a monthly increase of 1.3 points and 1.1 points above consensus.

A PMI number over 50 signifies expanded activity over the previous month.

The increase was driven by gains in production, new orders and inventories, with employment and deliveries weighing down the headline number.

Perhaps the rosiest elements of the report were the respective 4.2 and 5.2 point drops in the prices paid and order backlog subcomponents, providing a glimmer of hope that the supply chain might be slowly untangling.

But what are the survey's participants saying?

"This month we asked firms what they anticipated was 'the biggest challenge to executing plans for the holiday season?'" says Les Commons and Lucy Hager of MNI. "The largest share (36.4%) said global shortages, followed by logistics (25.0%) and staff shortages (22.7%)."

On Tuesday, the Institute for Supply Management's (ISM) more comprehensive, national PMI reading is seen showing a slight, 0.9 point deceleration to 60.2.

The manufacturing sector, which contributes about 11% to U.S. GDP, has had to contend with soaring input prices in 2021 due to hobbled supply chains even as demand shifted from goods to services as the economy re-opened.

Yet despite those headwinds, goods-makers have done remarkably well throughout the crisis. The Chicago PMI trendline has now enjoyed a year-and-a-half in expansion territory.

Chicago PMI

Wall Street's tentative rosiness matched the data, with all three major stock indexes modestly green.

All three remain on track to post weekly, monthly, quarterly and annual gains, with the benchmark S&P 500 (.SPX) currently boasting a 28% surge in 2021.

(Stephen Culp)



The Dow Jones Industrial Average (.DJI) and S&P 500 (.SPX) are both on track for fresh record-high closes early Thursday as a drop in weekly jobless claims showed no impact yet on employment from the surge in U.S. coronavirus infections.

With this, the blue-chip Dow is on track for a seventh-straight day of gains. The DJI last rose seven days in a row in March of this year. It last gained eight-straight days in late-July/early-August 2020.

Small caps (.RUT) and banks (.SPXBK) are among early outperformers. Meanwhile, given softness in tech (.SPLRCT), and specifically chips (.SOX), the Nasdaq Composite (.IXIC) is hovering just above flat. The IXIC is still about 2% shy of its Nov. 8 record close.

Here is where markets stand in early trade:


(Terence Gabriel)



Apple (AAPL.O) has come within striking distance of the $3 trillion market cap milestone.

With this, AAPL's relative strength line vs the Nasdaq 100 (.NDX) is nearing its own important hurdle in the form of a more than 30-year resistance line:


Of note, the AAPL/NDX ratio briefly spiked above this barrier in late-August/early September 2020. However, it failed to sustain several one-day breakouts above the line. The stock then topped and suffered a significant decline. AAPL lost around 20% on a closing basis in just 12 trading days (tds) into its late-September 2020 trough.

Then again, in late-December of last year, and late-January of this year, the ratio once again flirted with the resistance line. After it topped, essentially right at the barrier on Jan. 27, AAPL slid around 18% over the next 27 tds into its early-March trough.

The ratio bottomed in early June and then with its Nov. 8 low, it used the support line from early-2019 as a launching pad. AAPL has rocketed about 20% in the 35 tds since then.

With the line around 1.106% in mid-December, the ratio hit a record high of 1.101% on Dec. 15, and has since deflated. Over the coming weeks, the line will ascend to the 1.108%/1.109% area.

The ratio may need to overwhelm this barrier for Apple to sustain its leadership position vs. the NDX. Otherwise, the stock may be close to another bout of instability.

(Terence Gabriel)



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

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