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- Major U.S. indexes end sharply higher; Nasdaq leads
- All major S&P 500 sectors end green; tech out front
- Dollar, bitcoin, gold, crude all gain
- U.S. 10-Year Treasury yield rises to ~1.48%
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U.S. STOCKS LEAP BACK INTO ACTION (1603 EST/2103 GMT)
Major U.S. indexes jumped on Tuesday, with the Nasdaq leading gains, as investors piled back into tech stocks and semiconductors in particular after Intel (INTC.O) announced plans to take its self-driving car unit public.
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The S&P tech sector (.SPLRCT) saw its best daily percentage gain since early November of last year, while the Philadelphia Semiconductor Index (.SOX) posted its biggest rise since early March of this year. Both indexes ended at record highs.
Overall, advancing issues swamped decliners. The NYSE and Nasdaq A/D ratios were their strongest since August 27.
Traders will now be eyeing action over the coming days to assess whether Tuesday's relatively strong breadth is the kickoff to a much more sustained rise, or if it is the tail-end of an oversold bounce.
And given that on Tuesday, the SPX and IXIC did stall essentially right at Fibonacci retracement levels of their recent declines.
Here is your closing snapshot:
IS THE U.S. ECONOMY NEARING DEAD MAN'S CURVE? (1345 EST/1745 GMT)
Joseph Lavorgna, chief economist, Americas, at Natixis, is out with a note highlighting a potential danger signal for the U.S. economy.
Lavorgna says the bond market is flashing warning signs. This because "the significant flattening of the treasury curve tells us that investors expect real GDP growth to slow sharply next year."
He notes that the market is now expecting the Fed's first rate hike to occur in July 2022, from a previously expected February 2023. The spread between 2- and 10-year Treasury yields has declined more than 25 basis points just since the Thanksgiving Holiday. Additionally, the current spread, at around 78 basis points, is the lowest since December 2020, when the economic recovery was still in its nascent stages:
According to Lavorgna, "When the yield curve massively flattens because the timing of rate hikes has been brought forward, but the magnitude of cumulative rate hikes has collapsed, the market is clearly sending a signal of impending policy error."
He adds that he hopes Fed policymakers consider these factors next week when they meet to discuss any potential acceleration in asset tapering.
2022'S ETF WATCHLIST: ISHARES VS. VANGUARD AND SHIFTING FLOWS (1245 EST/1745 GMT)
By design, investing in exchange-traded funds is often less exciting than some other strategies, but CFRA's head of ETF and mutual fund research Todd Rosenbluth points out some interesting developments ETF investors should watch out for in 2022.
On the top of his list is whether actively managed funds can capture market share from their passive counterparts. Through November of 2021, actively managed equity ETFs gathered 7.8% of overall flows into the sector despite only representing 2.3% of overall assets, and Rosenbluth thinks 2022 could be an even better year for actively managed ETFs.
Asset managers including Charles Schwab and Fidelity have expanded their active equity ETF offerings in 2022. Meanwhile, Rosenbluth predicts that loyal fans of ARK CEO Cathie Wood may plow more money into funds such as the ARK Innovation ETF, betting on a rebound after it dropped over 15% this year.
Another trend on Rosenbluth’s radar is whether BlackRock’s iShares can recapture ETF flows from $2 trillion provider Vanguard.
Vanguard had six funds among the top-10 most purchased ETFs this year, gathering over $300 billion in new inflows. Comparatively, iShares pulled in $180 billion, let by its popular iShares Core S&P 500 ETF (IVV.P) and its Core Total USD Bond Market ETF.
However, CFRA predicts that the strong liquidity of BlackRock’s biggest funds could help it recapture flows leadership while its smart-beta suite could gain more ground in 2022.
Finally, ETF investors should eye the growth of thematic ETFs which gathered $46 billion in 2021 through December 1, representing just 6% of industry net inflows.
CFRA thinks thematic funds could also increase their market share to 10% of equity net inflows in 2022, seeing growth concentrated in funds focused on buzzy investing themes such as blockchain, cleantech and healthcare innovation.
CHIP INDEX SURGES 5% TO RECORD HIGH (1145 EST/1645 GMT)
Wall Street shook off fears about the Omicron coronavirus variant on Tuesday, sending the Philadelphia semiconductor index (.SOX) surging 4.6%.
Earlier in the session it rose as much as 4.98%, to an intraday record high.
The SOX was set to log its strongest one-day gain since March, lifted in part by Intel's (INTC.O) announcement that it will take self-driving-car unit Mobileye public in mid-2022, a deal which could value it at more than $50 billion. read more
Intel is jumping 4.3% on the news, bringing the underperforming stock's gain in 2021 to 7%.
Tuesday's surge in semis more than reverses a recent rotation into defensive stocks that was sparked by uncertainty about the Omicron variant. Chipmakers have been major winners as the global economy emerges from coronavirus lockdowns, even as the industry wrestles with production shortages and a supply chain crisis.
As much as Intel's stock gained on Tuesday, other chipmakers are having an even greater impact on the SOX: Nvidia (NVDA.O), the world's most valuable chipmaker, is up 5.9%, while Qualcomm (QCOM.O) is rallying 4.7%, and Broadcom (AVGO.O) is climbing 4.4%. All 30 stocks in the chip index are up, helping elevate its year-to-date gain to 42%. With less than a month to go in the year, the SOX is now 9% short of matching its 51% gain in 2020.
EXPLORING THE ENERGY SECTOR (1137 EST/1637 GMT)
In her latest weekly market commentary, Saira Malik CIO, head of global equities at Nuveen, explores the energy sector.
Malik says that the energy sector has seen a "remarkable recovery from the depths of pandemic-driven economic lockdowns, returning approximately 50% year-to-date." With this, she says balance sheets have been shored up as demand for oil has strengthened through 2021. In fact, even with the Delta variant, she says demand has returned to pre-COVID-19 levels.
According to Malik, the trajectory for demand has remained so strong that the International Energy Agency (IEA) recently forecasted 2019 levels to be surpassed by the end of 2022. While the arrival of Omicron could potentially curtail oil demand, this may prove to be temporary, as she says that each new wave of the virus has had a smaller economic impact than the last.
Meanwhile, Malik also highlights that OPEC+ announced last week its intentions to go forward with its planned increase of 400,000 barrels per day in January, even with the 20% drop in the price of crude caused by the newest variant. Additionally, Nuveen expects U.S. producers to adhere to supply discipline in an effort to avoid price declines similar to that seen in previous cycles.
From a valuation perspective, Nuveen currently views the energy sector favorably, even after 2021’s rally. Additionally, Malik says that even mounting sentiment against the sector — reflecting a shift in government and consumer focus away from fossil fuels to alternative/renewable sources — makes the sector an attractive contrarian play.
"Assuming durability in oil price levels, along with strict adherence to production discipline, we believe energy can be a source of ample investment opportunity over the next several years."
OMICRON IMPACT UNCLEAR EXCEPT IN TRAVEL TURBULENCE (1032 EST/1532 GMT)
According to Jefferies Chief Economist Aneta Markowska, the JEF US Economic Activity index fell by 4.9 points last week, reversing a two thirds increase in the prior week.
Markowska notes that the prior week's increase could've been exaggerated by seasonality related to Thanksgiving and Black Friday. And the economist writes that "despite last week's drop, the positive trend that has been in place since late September remains intact for now," boding well for November, and Q4 GDP.
But then there's Omicron, the latest COVID-19 variant, which Markowska sees posing a "clear downside risk for December and Q1" although the impact is still of course not clear.
One thing the economist has noticed however is a visible impact in the form of falling airline passenger numbers, "particularly those arriving into the U.S. from overseas."
Of course some of last weeks fading travel numbers could be to do with Thanksgiving but "Omicron is likely playing a role as well," the economist writes.
Meanwhile U.S. airline stocks have seen dizzying volatility, rising 5.5% on Monday after falling 2.5% in Friday's session and rising 7.5% on Thursday in its biggest one-day gain since Nov. 9 2020 when virus-lockdown-weary investors celebrated the announcement of effective COVID-19 vaccines. Of course Thursday's rally had followed a 6% decline in the previous days session. After all that, Tuesday's 1.8% gain so far, seems practically sedentary.
All the S&P airlines are rising on Tuesday with the biggest gain from Hawaiian Air (HA.O), up 2.4%. American Airlines Group Inc (AAL.O), is up ~2.2% after it announced CEO Doug Parker will hand over the reins of the No. 1 U.S. airline to president Robert Isom on March 31. read more
U.S. STOCKS RALLY AS TECH TAKES ITS TURN (0954 EST/1454 GMT)
Wall Street's main indexes are sharply higher in early trade on Tuesday as technology firms bounced back on easing concerns around the Omicron variant, while Intel jumped after plans to take its self-driving car unit public.
Additionally, U.S-listed Chinese stocks are rising, tracking earlier gains in mainland stocks after a reserve ratio cut by China's central bank bolstered sentiment. Overnight, Hong Kong's Hang Seng
Here is where markets stand in early trade:
S&P 500: ENOUGH DOWNSIDE, OR JUST THE BEGINNING? (0900 EST/1400 GMT)
In the eight trading days from its November 18 record close to its December 1 finish, the S&P 500 index (.SPX) suffered a 4% setback,
Since then, it has mounted a choppy recovery. However, with CME e-mini S&P 500 futures pointing to a more than 1% rise in early trade Tuesday, the benchmark index could be on track for back-to-back up days.
Meanwhile, the 5-day moving average of the CBOE equity put/call (P/C) ratio, which can be viewed as a contrarian measure of sentiment, has now risen to 0.592, which has it matching its May 14 high. That high was also just after the SPX completed a 4% slide, although in that case over just three trading days:
Of note, since bottoming at 0.402 in mid-June 2020, the P/C measure has ranged between high-30% and low-60% readings. If this pattern is to continue, then the measure could be signaling that market sentiment may have become sufficiently bearish. If so, the SPX may have found, or could be very close to, a low.
However, also of note, for around 20 years, from 2000 to 2020, the measure's range was mostly in the 50% to 90% area. It has only been post the COVID-crash, that the P/C measure's range has shifted down to similar levels that led up to the tech-bubble peak in 2000.
Therefore, traders will be watching to see if the P/C measure is to turn down, and oscillate back below 0.4. A breakout much above the low-0.60 area may signal panic. The measure peaked at 1.05 on March 17, 2020, in what was a more than 30% S&P 500 collapse.
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