LIVE MARKETS Problems under the surface of the Nasdaq
- The main American indices slipped by almost 2%; small caps, banks hit harder
- All major red S&P sectors: financials, materials the weakest groups
- Drop in dollar, gold, bitcoin, drop in crude> 4%
- The 10-year U.S. Treasury yield drops to ~ 1.40%
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ISSUE UNDER THE NASDAQ SURFACE (1300 EST / 1800 GMT)
As investors fear growth stocks may be hit by rising interest rates, as well as concerns over the Omicron variant of the coronavirus, the Nasdaq (.IXIC) appears to be limping towards the finish line as 2021 is drawing to a close.
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While the index has fallen about 7% from its high close in mid-November, it remains up about 15% since the start of the year.
Much of the Nasdaq gain in 2021 came from heavyweight members of the index, like Nvidia (NVDA.O), which more than doubled in 2021, and Microsoft (MSFT.O), which jumped more than 40%.
However, within the Nasdaq, the vast majority of stocks are struggling. In recent days, nearly 70% of the Nasdaq’s constituents have traded below their 200-day moving averages, according to data from Refinitiv. This is the highest rate of companies trading below their 200-day moving averages all year round. Read more
GREEN PASTURES FOR ESG BONDS (1234 EST / 1734 GMT)
Investment grade environmental, social and governance (ESG) bonds fare better in the primary corporate debt market than other bonds, according to a recent report by BofA Global Research.
Analysts have estimated that over the past four years, the price of ESG bonds on average has been 2.4 basis points tighter, when comparing the concessions of new ESG bond issues to the rest of the market.
“Growing cost savings in ESG debt issuance are expected to continue to support rapid market growth next year after issuance rose 73% (year-over-year) to $ 84 billion. dollars in 2021, “the report said. “Demand could also benefit from a greater number of US investment grade credit investors adhering to strict ESG guidelines, which currently represent only 5% of the total.”
BofA’s November survey of U.S. credit investors found that 59% pay attention to ESG issues but have some flexibility in their investment decisions.
SEARCH FOR SHELTER IN A MARKET STORM (1153 EST / 1653 GMT)
With Omicron, the latest variant of COVID-19, increasing anxiety levels among investors, DataTrek Research has taken stock of the situation and looked for silver liners.
Looking at the market weakness after Thanksgiving, co-founder Nicholas Colas cites a preference for large-cap US stocks. At Friday’s close, the S&P 500 (.SPX) fell 1.7% since Nov. 24, but it noted that it had outperformed other areas such as small caps. The Russell 2000 (.RUT) is down 6.8% over the same time frame, as are emerging market stocks.
Colas notes a defensive preference of investors whose health (.SPXHC) increased by 4% over this period, followed by a gain of 3.2% in public services (.SPLRCU) and consumer staples (.SPLRCS) and a 1.9% gain in real estate (.SPLRCR). ). In comparison, consumer discretionary (.SPLRCU) fell 6.9% while energy (.SPNY) fell 6%, followed by financials (.SPSY) down 3.8% and industrials. 3.4%.
Of course, the defensive bias is not only due to the pandemic but also the decline in long-term US yields – 1.65% at 10 years on November 24 to 1.41% at the time of writing.
This drop would automatically favor performance-sensitive groups like utilities, commodities and real estate. But while Colas names healthcare as DataTrek’s preferred defensive sector, the strategist says he still likes energy, financials and industrials in cyclicals.
Colas also looked at the other elephant in the trading room – the Federal Reserve and concerns about rate hikes.
He argues that Fed Funds Futures are actually “the most bullish market signal around.” If the virus were to “become a systemic challenge for the US economy in the first half of 2022 (as the bear case puts it),” he asked if the Fed was really going to raise rates quickly?
“We doubt it, even if inflation remained a concern,” he said.
In any event, in Monday’s trade, in volatile skies, the action appeared to confirm Colas’ bias, given that commodities, utilities and healthcare are the least down in price. all major sectors of the S&P 500.
SHARE BUYBACKS MAY KEEP CORRECTIONS BRIEF EVEN AS VOLATILITY INCREASES (1055 EST / 1555 GMT)
Firms have stepped up repurchases of their own shares even as retail share purchases slow and institutions reduce their holdings of shares. This likely means market corrections will remain shallow, even as market volatility is expected to increase, said Brian Reynolds, chief market strategist at Reynolds Strategy.
Net corporate buyouts hit a record $ 263 billion in the third quarter and topped investor inflows for the first time since the start of the pandemic, Reynolds said in a report on Monday, citing data on the flow of funds.
When you break down the data further, it shows that companies, retail investors, and institutional investors are all on “very different paths,” he added, noting that this “bodes well for greater volatility in markets. shares in 2022 than in 2021, although less average than what was seen in the previous bull market.
Share buybacks from debt-fueled companies are likely to be strong enough to keep stock market corrections brief, although they won’t prevent a panic sell as the Wall Street offices that execute the share buybacks of companies prefer to buy stocks as they recover, after the sale is exhausted. , said Reynolds.
Retail investors are also expected to help keep the pullbacks brief and smaller, on average, than those seen in the last bull market, he said.
However, Reynolds believes stocks risk a 10% correction if inflation expectations drop too quickly, and the spread of the Omicron COVID variant could contribute to such a development.
The decline in institutional investors, who became sellers in the third quarter, should also keep the market volatile. “Our big picture is of a bull market that will be marked by brief but frightening corrections,” said Reynolds.
SPOOL FROM AMERICAN STOCKS IN EARLY TRADE (0953 EST / 1453 GMT)
Major U.S. indices are down sharply on Monday, dragged down by concerns about the impact of tightening COVID-19 restrictions on the global economy and a potentially devastating setback to President Joe Biden’s investment bill.
Among other developments, China on Monday cut its Prime Lending Reference Rate (LPR) for the first time in 20 months, and Turkish markets are under pressure following President Tayyip Erdogan’s defense of low interest rates on Sunday. .
With this, the Euro STOXX 600 (.STOXX) is down around 1.4%. However, it was down 2.6% to its worst level of the day.
At the start of the American action, it was a sea of red. With this, the more economically sensitive sectors of the S&P 500 (.SPX) are the most affected, while, unsurprisingly, defensive bond groups are the least affected.
Here is a look at the early exchanges in the United States:
DOW INDUSTRIAL: STILL SICK (9:00 AM EST / 1400 GMT)
U.S. stock index futures tumble on Monday, driven by fears of tighter restrictions on the global economy, due to the Omicron variant.
Given the action on the e-mini Dow CBT futures, the Dow Jones Industrial Average (.DJI) is set to drop more than 400 points when regular session trading begins.
This relapse comes after the blue chip average failed to post a close above the 76.4% / 78.6% Fibonacci retracement area of its November-December decline to 35,961.87. / 36,018.16, keeping alive the potential for its December rebound to be counter-trend read more:
With early weakness on Monday, the DJI may once again threaten its rising 200-day moving average (DMA), which ended around 34,605 on Friday.
Key support is on a broken logarithmic scale resistance line from 1929, which is now around 34,100, and the Dow Jones December 1 low, which is at 34,006.98.
Closing below this support zone may suggest the potential for a much larger decline, as the trendline has subsequently contained the weakness in the Dow since it was first breached in. March.
However, a reversal from the 50-DMA, which ended around 35,545 on Friday, may see the Dow Jones attempting the Fibonacci barrier again. Read more
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Terence Gabriel is a market analyst at Reuters. The opinions expressed are his
Our Standards: Thomson Reuters Trust Principles.