- S&P 500, DJI, Nasdaq dip; FANGs up, transports weak
- Real estate weakest major S&P 500 sector; energy leads gainers
- Euro STOXX 600 index rallies ~0.8%
- Dollar, bitcoin down; gold, crude green
- U.S. 10-Year Treasury yield rises to ~1.77%
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SMALL BUSINESS SENTIMENT TURNS LESS SOUR (1055 EST/1555 GMT)
Small business owners grew a tad more sanguine last month at the finishing line of a challenging year fraught with pandemic, inflation and a labor drought.
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The National Federation of Independent Business’ (NFIB) Optimism index (USOPIN=ECI) edged up half a point to 98.9 in December, with survey respondents reporting inflation is now the biggest thorn in their sides. read more
“Small businesses unfortunately saw a disappointing December jobs report, with staffing issues continuing to impact their ability to be fully productive,” writes Bill Dunkelberg, NFIB’s chief economist. “Inflation is at the highest level since the 1980s and is having an overwhelming impact on owners’ ability to manage their businesses.”
Still, improved capital outlays and higher reported/expected sales helped the headline number grow higher, as did growing inventories – a hopeful sign that the pandemic-stricken supply chain could be untangling (a notion supported by recent ISM PMI data).
But the worker shortage persists, with reported compensation and those citing labor costs as their top business problem both rose to 48-year record highs.
“That sounds dramatic,” says Ian Shepherdson, chief economist at Pantheon Macroeconomics. “(But) it just represents a catch-up to the surge already reported in ECI private sector wages and salaries.”
“The labor market clearly is extremely tight, but it is not necessarily still tightening,” Shepherdson adds. “The jobs-hard-to-fill measure peaked back in September, though it remains extremely high.”
It’s worth noting that the NFIB is a politically active membership organization, and its optimism index – which hit a post-pandemic low the month President Joe Biden was inaugurated – still remains well below pre-COVID levels.
Wall Street traded lower as Federal Reserve Chairman Jerome Powell took his seat at a congressional hearing, which is sure to address rising inflation concerns as reflected in the NFIB report. read more
Cyclicals and economically sensitive transports (.DJT) were down the most.
VALUE-GROWTH ROTATION BATTLE ON WALL STREET (1015 EST/1515 GMT)
Wall Street opened lower on Tuesday, but underneath, an ongoing rotation was occurring as value stocks battled to outperform growth shares.
Growth poster-child Information technology (.SPLRCT) accounted for the largest portion of the S&P 500’s decline, with value-oriented energy (.SPNY) among the few sectors showing upside.
The market is grappling with a broad-based rotation and the potential for a hastened pace of rate hikes, which is leading to volatility, according to Greg Marcus, managing director at UBS Private Wealth Management in Washington.
The sector rotation presents an opportunity to reposition and put cash to work in sectors exposed to reopening trends, such as energy, consumer discretionary and financials, he said.
Value stocks, as measured by the S&P Value index (.IVX), have been outperforming their growth counterpart (.IGX) since the end of November, and are up 7.6% versus a 2.0% decline.
Since the beginning of the year, value is up 0.7% versus a 4.3% decline in growth.
On Tuesday so far, value is now off 0.34% versus a 0.17% decline in growth.
Here is an early snapshot:
NASDAQ COMPOSITE: WORN TO A FRAZZLE? (0900 EST/1400 GMT)
At one point Monday, the Nasdaq Composite (.IXIC) was down more than 10% in just seven weeks from its late November record intraday peak just before an upward reversal that saw the tech-laden index close slightly higher on the day. read more
With this, one measure of internal strength is suggesting the tech-laden index may be washed-out, and ripe for a bigger recovery:
The 10-week moving average (WMA) of the Nasdaq advance/decline (A/D) (.AD.O) ratio, has plunged to 82%, or its lowest level since an 81% reading in early July 2010. That 2010 low marked the end of a near 20% nine-week slide in the index.
In 2011, this measure bottomed in early September at 83%. It then converged into the Composite’s early October trough. The IXIC fell around 7% more over the final four weeks of what would become a 20%, 22-week decline.
Two additional near 20% sell-offs then ended in summer 2015 and early 2016, lasting five and 10 weeks, saw this measure bottom at 88% and 87%.
More recently, after a 24%, 17-week swoon that concluded in late December 2018, this measure bottomed at 84%. Then in early 2020, in the wake of a near-33%, five-week, collapse, this measure became washed out at 84%.
The fact that the 10 WMA of the A/D ratio is already as low as it is after an IXIC drop of only around 10% is a testament to just how weak the broader Nasdaq has been. The Nasdaq daily A/D line topped in February 2021, and ended Monday at a 16-month low. read more
It now remains to be seen where the 10 WMA of the Nasdaq A/D ratio will end the week. Of note, in 2008, in the depths of the Great Financial Crisis, it fell as much as 68% in November, before converging into the Composite’s March 2009 low.
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Reporting by Terence Gabriel
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