- S&P 500, Nasdaq back in positive territory; DJI still red
- Energy biggest gainer of major S&P sectors; materials down most
- Euro STOXX 600 index falls ~1.3%
- Dollar ~flat; crude up; gold, bitcoin down
- U.S. 10-Year Treasury yield rises to ~1.74%
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THURSDAY DATA: HOW BIG AN ECONOMIC PARTY-POOPER IS OMICRON? (1110 EST/1610 GMT)
A data banquet awaited market participants on Thursday, the day after the Fed revealed itself to be more hawkish than expected and a day before a hotly-anticipated end-of-year employment report.
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Taken together, the indicators expose an economy struggling to return to an even keel just as the unwelcome Omicron COVID variant elbowed its way to into the headlines.
The number of U.S. workers filing first time applications for unemployment insurance (USJOB=ECI) unexpectedly inched up by 7,000 last week to 207,000, according to the Labor Department.
The consensus forecast saw the number edging in the other direction, to 197,000.
Since mid-November, the number has hovered near the 200,000 mark, considered by many the lower end of a range associated with healthy labor market churn.
“We may still see some rise in claims due to the latest wave of covid cases, but over time we expect claims will more consistently hover around the 200k mark,” writes Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
It’s unclear whether the increase reflects spiking infections of the Omicron COVID variant, in fact Omicron could be holding those numbers down.
“The initial impact likely is to make firms even more keen to keep people, as absenteeism due to Covid rockets,” suggests Ian Shepherdson, chief economist at Pantheon Macroeconomics.
The increase could also herald a return to normal for the jobs market, with the worker drought easing, and employers more willing to hand out pink slips.
Case in point, pre-announced layoffs jumped by 28.1% in December, according to executive outplacement firm Challenger, Gray & Christmas.
The Challenger Gray report (USCHAL=ECI) shows 19,052 layoffs were announced last month, up 28.1% from November, but down 75.3% year-over-year and capping the lowest annual total on record.
Notably, a chunk of December’s increase is attributable to COVID vaccine refuseniks, a phenomenon which is likely to continue.
“January may see more cuts due to workers’ refusal to get vaccinated, since many companies imposed deadlines for this month,” said Andrew Challenger, the firm’s senior vice president.
Indeed, the healthcare sector accounted for the largest slice of last month’s announced job cuts, as OSHA rules requiring hospital workers to be jabbed against COVID kicked in on Jan. 4.
On the bright side, job cuts in customer-facing services sector, which bore the brunt of social distancing mandates to contain the disease, plunged 98.1% in 2021.
Speaking of the devil, the U.S. services sector expanded at a slower pace last month.
The Institute of Supply Management’s (ISM) non-manufacturing purchasing managers’ index (PMI) (USNPMI=ECI) posted a reading of 62, a 7.1-point monthly drop and a steeper decline than analysts expected.
A PMI number above 50 signals a monthly increase in activity.
But while momentum was lost in business activity, new orders and employment, the headline print remains well above pre-pandemic levels and represents the sector’s 19th consecutive month of expansion.
On the downside, the prices paid component edged up, further evidence of supply chain challenges.
“The rate of growth remains strong for the services sector,” says Anthony Nieves, chair of ISM’s services business survey committee.
However, Nieves adds that the survey’s “respondents have indicated that they continue to struggle with inflation, supply chain disruptions, capacity constraints, logistical challenges and shortages of labor and materials.”
In another report, the trade gap gaped wider than analysts predicted in November as imports touched an all-time high. read more
Commerce Department data shows the deficit between the value of imports from U.S. trading partners and domestic goods and services exported abroad (USTBAL=ECI) jumped 15.6% to $80.2 billion in the penultimate month of 2021.
Breaking it down, a 4.6% jump in imports handily offset a more languid 0.2% increase in exports, as the U.S. demand recovery continues to outpace that of the rest of the world.
The closely-watched U.S.-China goods trade gap narrowed to $32.3 billion.
“Overall, trade flows have recovered pandemic losses with both exports and imports now higher than pre-crisis levels despite supply chain disruptions and logistical challenges,” says Rubeela Farooqi, chief economist at High Frequency Economics. “New virus outbreaks could be a near-term headwind if they weigh on global demand and further aggravate supply chains.”
Finally, the Commerce Department also reported that factory orders (USFORD=ECI) gained steam in November, growing 1.6% and building on October’s upwardly-revised 1.2% increase.
Wall Street is muted in late morning trading as investors nursed their Fed hangovers and girded their loins for Friday’s employment report.
The S&P (.SPX) and the Nasdaq (.IXIC) are back to pale green, with the Dow (.DJI) modestly red.
U.S. STOCKS QUICKLY TURN HEAVY (1015 EST/1515 GMT)
The S&P 500 (.SPX) lost its bid after the first 15 minutes or so of the trading day, and is now red. This as interest rate-sensitive growth names remain heavy from the Federal Reserve’s hawkish signals.
With this, the U.S. 10-Year yield , now around 1.73%, continues to flirt with its March/April 2021 highs.
Chips (.SOX), and FANGs (.NYFANG) are both weak. Thus, the tech-laden Nasdaq (.IXIC) is taking the biggest hit among the major indexes.
Banks, however, are proving resilient. The S&P 500 Banks index (.SPXBK) is gaining, and on track for its biggest weekly rise since late-June of last year.
Meanwhile, the S&P 500 Value (.IVX)/S&P 500 Growth (.IGX) ratio is on track for its biggest weekly gain since November 2020.
Here is where markets stand in early trade:
AMD, TESLA, NVIDIA MOST POPULAR RETAIL PICKS IN LATEST WEEK (0921 EST/1421 GMT)
Long time retail favorites – chip makers AMD (AMD.O) and Nvidia and electric-car maker Tesla Inc (TSLA.O) – continued to be the most popular single stock purchases among small-time investors in the final week of 2021, data from JPMorgan’s weekly retail flows report showed.
AMD attracted $248 million in retail flows this past week, while Nvidia locked in $173 million and Tesla $115 million.
Indeed, AMD, TSLA and NVDA were among the top 10 most traded stocks by Fidelity’s customers.
However, retail flows in December were concentrated in ETFs versus single stocks and S&P 500 (.SPY) and Nasdaq 100 (QQQ.O) continued to dominate market share last week, JPMorgan data showed.
There was also growing evidence of rotation in terms of sectors, JPM strategist Peng Cheng said energy and financials showed strong demand and ETF tracking 7-10 Year Treasury Index (IEF.O) were sold the most in the latest week.
In fact, two ETFs managed by Cathie Wood-led ARK Invest – Next Generation Internet ETF (ARKW.P) and Genomic Revolution suffered meaningful retail selling, according to Cheng.
Retail interest in cinema operator AMC (AMC.N) and GameStop (GME.N), which were at the center of massive rallies in meme stocks in 2021 that hurt bearish hedge funds, have eased recently.
But the retail buying appetite at large showed no signs of abating in the new year with Jan. 4 recording an estimated $1.4 billion of retail market order imbalance, the second highest ever observed after Black Friday, Cheng added.
FANGS LOOK FRAGILE (0900 EST/1400 GMT)
With the market taking a bite out of growth stocks read more , tech titans were torn apart on Wednesday. Indeed, the NYSE FANG+TM Index (.NYFANG) had more than 3% sliced off and finds itself, once again, flirting with chart support.
NYFANG is equal-weighted and includes 5 core FAANG stocks: Facebook (FB.O), Apple (AAPL.O), Amazon.com , Netflix and Alphabet (GOOGL.O). It also includes another 5 actively-traded technology/growth stocks: Alibaba , Baidu , Nvidia (NVDA.O), Tesla (TSLA.O) and Twitter (TWTR.N).
NYFANG topped in early November right at a resistance parallel derived from its May 2021 low:
In the wake of a more than 12% tumble, the index bottomed at the support line from its May low, which was backed up by the 200-day moving average (DMA).
After retracing about two-thirds of that decline, NYFANG slid again, this time suffering a one-day closing violation of both the support line, and the long-term moving average, on Dec. 20.
Nevertheless, the index was able to mount another sharp bounce. However, the quick reversal back up failed to reclaim the 50-DMA, leading to this week’s swoon.
Now, the index is once again testing the support line, at around 7,215, the 200-DMA, which ended Wednesday around 7,135, and the December lows, in the 7,086/7,000 area. Traders will be watching to see if this zone can remain resilient. read more
Breaking this support, including two-straight closes below the 200-DMA, can suggest much greater downside risk given the October trough was at 6,771. The 2021 lows were in the 6,106/6,086 area. A decline to this area would be around a 25% collapse from the high.
NYFANG will need to reclaim its 50-DMA, and its early January high, at 7,604.51, to suggest pressure is off the downside.
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Terence Gabriel is a Reuters market analyst. The views expressed are his own
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