- S&P 500 dips, Nasdaq slides ~1.8%, DJI rises
- Energy leads S&P sector gainers; tech weakest group
- Banks surge, FANGs, chips fall
- Dollar ~flat; gold, crude up; bitcoin red
- U.S. 10-Year Treasury yield rises to ~1.68%
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GOOD NEWS – JANUARY IS A STRONG MONTH FOR EQUITY INFLOWS (1345 EST/1845 GMT)
After a strong start, a possible extra upside for stocks this month is that is investors typically pour money into the asset class to start the year, according to Bank of America.
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January has seen the strongest inflows by BofA clients since 2008, on average, and has seen net buying in 10 of the last 14 years, analysts Jill Carey Hall and Savita Subramanian said in a report on Tuesday. It is also the only month where clients bought both stocks and exchange traded funds (ETFs), on average, they said.
Retail investors have typically led purchases during the month, and January is the only month in BofA’s data history where they have been net buyers, on average. Institutional investors and hedge funds, meanwhile, typically sell equities in January, though with smaller outflows than average, Bank of America said.
Sector-wise, financials typically see the biggest average inflows during the month, the analysts said. Energy and industrials also have positive average inflows during the month, compared with average outflows in all other months, they added.
Meanwhile share buybacks, which typically decelerate in January, tend to pick up in February during earnings season, Bank of America said.
The Dow (.DJI) hit a record high on Tuesday, boosted by banks and industrial stocks as worries about the Omicron variant of the coronavirus subsided.
ON THE WAY TO APPLE’S $3 TRLN MARKET CAP: LOTS OF BUYBACKS (1300 EST/1800 GMT)
Among factors behind Apple (AAPL.O) reaching $3 trillion in market capitalization may be its super high level of share buybacks over the years.
“Buybacks are definitely one of the parts. You know there’s going to be buying there even if other people don’t like it,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
“They are doing buybacks at record levels,” he said. “From an investor point of view, it’s very important.”
Apple on Monday became the first company to hit the market cap milestone, but its market value was just under that level by Tuesday afternoon trading.
Silverblatt said Apple has bought back $348.3 billion in the five years to the third quarter of 2021, reducing its share count by 22.9% over that period.
Historically, the company accounts for 14 of the top 15 biggest quarterly buybacks for S&P 500 companies, Silverblatt’s data shows.
Investors and others are “assuming they are going to continue this, and that’s a very good assumption,” Silverblatt said.
NEW YEAR KICKS OFF WITH A BANG (1140 EST/1640 GMT)
With London closed for a bank holiday on Monday, today was the first trading day for the FTSE and blue chips (.FTSE) kicked off the year with a bang, jumping 1.6%, as Omicron fears eased.
The best performer, in terms of single stocks, is British Airways owner IAG (ICAG.L), which staged its best day since November, lending some support to the European travel and leisure index (.SXTP) – a gauge of fears around the pandemic- up 3.3% to touch its highest level in six weeks.
Tuesday’s milestones extended across Europe with the pan- European index STOXX 600 (.STOXX) hitting record highs, with the auto index (.SXAP) set for its best week in 11 months and banks (.SX7P) having their best day since October, up 3.2%.
PMI, JOLTS: IS THE ECONOMY CHANGING ITS TUNE? (1125 EST/1625 GMT)
“Scarcity of supplies and workers” was among the songs receiving the most airplay in 2021, an earworm that fed inflation anxieties helped scrub the phrase “transitory inflation” from the Fed’s vocabulary.
But two reports released on this, the second trading day of the new year, suggests the economy might be humming a more upbeat melody.
For starters, while activity at U.S. factories lost momentum in the closing weeks of 2021, there’s glimmers of hope buried beneath the headline.
The Institute for Supply Management’s (ISM) purchasing managers’ index (PMI) (USPMI=ECI) notched a December reading of 58.7, marking a 2.4-point deceleration from November and coming in below the consensus figure of an even 60. read more
A PMI number over 50 signifies increased activity over the previous month.
While new order and inventory growth cooled down, the good news is that the prices paid component dropped to its lowest level in over a year, hinting that the strangled supply chain could slowly be un-choking itself.
And the employment inched higher, a positive sign for the sector, which has been challenged in recent months by a dearth of qualified workers.
“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with indications of improvements in labor resources and supplier delivery performance,” writes Timothy Fiore, chair of ISM’s manufacturing business survey committee.
Indeed, the report marks the 19th consecutive month in expansion territory for manufacturing sector, which is responsible for nearly 12% of U.S. GDP.
The survey’s respondents were once again singing in unison, with phrases like “continue to battle labor, material and transportation pressures,” and “dealing with supply constraints daily,” scattered throughout their commentary.
On Monday, global financial information firm IHS Markit released its take on December manufacturing PMI, delivering a slightly less rosy print of 57.7.
Separately, there were 10.562 million job openings in November, an unexpected pull-back from the prior month’s all-time record 11.091 million.
The Labor Department’s job openings and labor turnover survey (JOLTS) (USJOLT=ECI), which measures labor market churn, also showed increased hires and quits, while firings remained essentially flat.
Combined, these numbers bode well for the “full recovery” of the labor market, a goal repeated ad nauseum by the Federal Reserve as a condition for tightening its lax COVID-era monetary policy.
The rising quit rate is often seen as a barometer for consumer expectations, as workers are less likely to walk away from a gig in times of economic uncertainty. But the pandemic has added a question mark to that theory, as many Americans could be moving to the sidelines due to new restrictions as new variants emerge, and to good old-fashioned fear.
But Elise Gould, senior economist at the Economics Policy Institute, chooses to accentuate the positive.
“Hires are on an upswing as quits continue to rise,” tweets Gould. “Workers appear confident to quit their jobs in search of better ones.”
“To be clear: these trends predate the rise in Omicron,” Gould adds.
Market participants now look to Friday’s December employment report, which analysts expect to show 400,000 added jobs and an unemployment rate shaving off 0.1 percentage point to 4.1%.
Wall Street is a mixed bag in late morning trading, with financials (.SPSY) and industrials (.SPLRCI) underpinning the Dow (.DJI), but tech (.SPLRCT), and particularly FANGs (.NYFANG), and chips (.SOX), dragging the S&P 500 (.SPX) and the Nasdaq (.IXIC) into the red.
2021’S SWAGGER SIGNALS 2022 STRENGTH (1045 EST/1545 GMT)
The stock market kicked off 2022 with benchmark indexes hitting fresh record highs, and perhaps investors should have known as much because of how equities ended 2021.
The S&P 500 gained 4.4% in December, the 20th time the index had logged a December gain of at least 4% since 1928, according to Frank Cappelleri, desk strategist at Instinet.
For the prior 19 instances, the S&P 500 rose 16 times in January, or 84% of the time, Cappelleri said in a note, while January has only posted an increase 62% of the time overall. The average move during those 19 times was a gain of 2.3% versus an overall average 1.2% gain for January.
The S&P 500’s 10.6% rise in the fourth quarter is also a positive omen. The index has now gained at least 10% in 24 quarters since 1980, per Cappelleri. In past occasions, the index has risen in the following quarter 20 out of 23 times, or 87%, with an average move of 5.4%.
“Strength has begotten strength for quite some time, and while this could change at any time, we shouldn’t ignore studies like these – especially when they line up across different time frames,” Cappelleri said in his note.
U.S. STOCKS MIXED, BUT CLEAR TILT IN FAVOR OF VALUE (1019 EST/1519 GMT)
Meanwhile, the U.S. 10-Year Treasury yield continues to jump. It now stands around 1.67%.
With this banks are outperforming again. The S&P 500 Banks index (.SPXBK) is rallying more than 3% for a second-straight day. It’s rolling two-day gain is on pace to be its biggest since early 2021.
Here is where markets stand in early trade:
NASDAQ COMPOSITE: HEALTHIER GUT (0900 EST/1400 GMT)
The Nasdaq New High/New Low (NH/NL) index, a measure built around new yearly highs and lows, rose to 32.2% on Monday, which is its highest reading since Nov. 26. read more
Of note, the Nasdaq NH/NL index bottomed at 12.5% on December 6. It then showed a bullish convergence into the Nasdaq Composite’s (.IXIC) Dec. 20 low, and then established a higher trough at 19.7% on Dec. 22. It is now rapidly nearing a hurdle in the form of its mid-October low at 33.6%.
If 33.6% is cleared, the NH/NL index would certainly have substantial room for further improvement before it would approach intact resistance lines from its 2021 peaks. Its November high was 75.7%. read more
In that event, the IXIC could easily have sufficient underlying strength to propel it to fresh record highs.
Longer-term, however, concerns remain given that the Composite is so close to its record highs yet this measure is massively below its early-to-mid 2021 levels.
A NH/NL index break of its rising 10-day moving average, and then its late-December low, however, may potentially put the Composite back at risk for intensive care.
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Terence Gabriel is a Reuters market analyst. The views expressed are his own
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