- Major U.S. indexes green; banks index surges >3%
- Energy leads S&P 500 sector gainers; real estate weakest group
- Euro STOXX 600 index gains ~0.4%
- Dollar, crude rise; bitcoin, gold dip
- U.S. 10-Year Treasury yield ~1.59%
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2022 SAUNTERS IN LIKE A LAMB: MARKIT, CONSTRUCTION OUTLAYS (1056 EST/1556 GMT)
The first trading day of the new year greeted investors with a subdued duet of economic reports.
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Activity at U.S. factories lost velocity in the last month of 2021, expanding at its weakest rate in a year.
Global financial information firm IHS Markit’s final purchasing managers’ index (PMI) print for December (USMPMF=ECI) confirmed a slight pullback to 57.7 – its advance “flash” take released earlier in the month was 57.8 – marking a 0.6-point downtick from November.
A PMI number over 50 signifies increased activity over the previous month.
“December saw another subdued increase in US manufacturing output as material shortages and supplier delays dragged on,” writes Sian Jones, IHS Markit’s senior economist, who also found reasons to be cheerful.
“The end of the year brought with it some signs that cost pressures have eased,” Jones adds. “The uptick in input prices was the slowest for six months.”
While U.S. goods makers have had to contend with a stricken supply chain even as consumer demand has shifted to services, they continue to weather the COVID storm as least as well as its global rivals, and far better than China.
On Tuesday, the Institute for Supply Management (ISM) is due to release its factory PMI data, which analyst expect to come in at a slightly rosier reading of 60.1.
Markit and ISM PMIs differ in the weight they apply to various subcomponents (employment, new orders, etc.).
The graphic below shows the extent to which the dueling PMIs agree (or not):
In a separate report, outlays on U.S. construction projects (USTCNS=ECI) grew by 0.4% in November, softer than the 0.6% consensus. read more
But this disappointment was mitigated by the Commerce Department upwardly revising its previous October reading to 0.4% from 0.2%.
Once again, spending on residential projects – increasing 0.9% as homebuilders scramble to keep up with booming demand – did the heavy lifting, offsetting a 0.2% decline in government expenditures on public works.
Wall Street is green in morning trading as investors greeted 2022 in a buying mood.
Even with some sharp early swings, all three major U.S. stock indexes are in positive territory, with energy (.SPNY), small caps (.RUT), chips (.SOX), FANGs (.NYFANG) and banks (.SPXBK) leading gains.
Transports (.DJT) are in the red.
AS YIELDS RISE, U.S. STOCKS STRUGGLE TO HOLD GAINS (1002 EST/1502 GMT)
Major U.S. indexes kicked off the first trading day of 2022 to the upside as equity markets looked to extend a recovery from the pandemic shock into the new year.
However, an initial 0.6% thrust in the S&P 500 (.SPX) ran out of steam about 10 minutes into the session. The SPX is now just above flat on the day.
Meanwhile, the U.S. 10-Year Treasury yield is on an upswing. The yield is popping to the 1.60% area, putting it at a six-week high.
With the higher yields, banks (.SPXBK) are especially strong. Though, the NYSE FANG+ Index (.NYFANG) is also managing to be an outperformer on the day. This with NYFANG member Tesla charged up around 10% after record deliveries. read more
Bond-proxy sectors are the biggest laggards.
Here is where markets stand early on the first trading day of 2022:
WILL 2022 BE VALUE’S YEAR? (0900 EST/1400 GMT)
As of the end of 2021, the S&P 500 Growth index (.IGX) has outperformed the S&P 500 Value index (.IVX) for five-straight years:
Using Refinitiv data back to 1995, that tied the 2007-2011 period for the longest stretch of growth outperforming value. However, on a rolling five-year basis, this recent streak has been more pronounced, with the IGX/IVX ratio rising 78% into 2021 vs a 36% gain into 2011.
Although, the ratio rose last year, there was a sharp deceleration vs 2020, which was growth’s best-year ever vs. value. The ratio surged about 34% in 2020, just slightly exceeding a year-2000 jump of about 33%. In 2021, it posted a rise of just over 7%.
And growth stumbled sharply vs value into 2021’s year-end. In December, the ratio suffered its biggest monthly percentage fall since February.
Meanwhile, the growth vs value battle still looks to hinge on action in tech (.SPLRCT) vs financials (.SPSY). Late last year, tech accounted for around 56% of the SPDR S&P 500 Growth ETF’s (SPYG.P) weighting. At 23%, financials were the biggest exposure for the SPDR Value ETF (SPYV.P).
After going parabolic, the S&P tech sector, on a monthly basis, peaked vs. the financial sector in August 2020. The tech/financials ratio then turned down sharply:
Unless, that tech/financials ratio’s August 2020 high is overwhelmed, the recent recovery off the May 2021 trough can still prove to be a counter-trend bounce. If so, and tech resumes its decline vs financials, 2022 may well be the year growth ends its yearly winning streak vs value.
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Terence Gabriel is a Reuters market analyst. The views expressed are his own
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