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  • Major U.S. indexes end well of lows; Nasdaq ends slightly green
  • Industrials weakest major S&P 500 sector; healthcare leads gains
  • Dollar, gold rise; crude, bitcoin down
  • U.S. 10-Year Treasury yield hit 1.8080%, now ~1.77%

Jan 10 – Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

NASDAQ STAGES A BIG COMEBACK (1605 EST/2105 GMT)

Wall Street’s main indexes ended mixed on Monday, recovering after tumbling earlier in the session on expectations of a sooner-than-expected rate hike that pushed U.S. Treasury yields to fresh two-year highs.

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At one point, the Nasdaq Composite (.IXIC) had fallen 2.7%, putting it below its rising 200-day moving average (DMA) for the first time in 434 trading days. At the session low, the Nasdaq was down nearly 10% from its Nov. 19 record close.

However, tech (.SPLRCT), chips (.SOX), and FANGs (.NYFANG) all then staged impressive reversals, and finished in positive territory. Growth (.IGX) outperformed value (.IVX) for the first time in five days.

With this, the IXIC reclaimed its 200-DMA, and ended up slightly on the day. read more

Meanwhile, the U.S. 10-Year Treasury yield , after hitting a fresh two-year high at 1.8080%, has fallen back to roughly unchanged on the day.

This, as recent moves in these markets appear to have become stretched – Click here: read more

Here is Monday’s closing snapshot:

closer01102021

(Terence Gabriel)

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S&P 500 Q4 EPS EXPECTED TO GROW 20% (1345 EST/1845 GMT)

Jonathan Golub, chief U.S. equity strategist & head of quantitative research at Credit Suisse Securities, is out with his Q4 earnings preview. Earnings season kicks off in earnest on January 14 with results from a number of large banks.

According to Golub, S&P 500 revenue and EPS are projected to grow 13% and 20%, from 17% and 39% in Q3.

He says cyclicals are expected to deliver the biggest EPS growth, at 97%, followed by TECH+ (11%), non-cyclicals (11%), and financials (2%). He adds that early reports (20 thus far) have surprised by 7.2%.

Meanwhile, Golub says margins are expected to rise 70% for cyclicals and 2.6% for non-cyclicals, and contract 2.4% and 4.0% in TECH+ and financials. He adds that “typically, margins account for 80%-85% of earnings beats.”

Additionally, Golub says S&P 500 Value index (.IVX) EPS growth is expected to outpace the Growth index (.IGX) (26% vs. 16%) in Q4 as well as in each quarter in 2022.

(Terence Gabriel)

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TECH SELLOFF CLOBBERS CATHIE WOOD’S ARK INNOVATION ETF (1225 EST/1725 GMT)

Monday’s tech selloff is clobbering Cathie Wood’s Ark Innovation ETF (ARKK.P), and putting the already troubled fund on track for its lowest close since July 2020.

Ark Invest’s flagship exchange traded fund is down 4%, bringing its loss so far in 2022 to 14%. The Ark Innovation fund was the top performing U.S. actively managed fund in 2020, only to fall into the bottom 1% last year, per Morningstar.

Slammed by a shift on Wall Street away from ‘disruptive’ stocks that have yet to turn profits, the ETF has now lost about 48% from its record high close in Feb. 2021.

Many of Ark Innovation’s biggest holdings have taken a hit recently, with No. 2 holding, Zoom Video Communications (ZM.O), down 52% in the past 12 months and No. 3 holding, Teladoc Health (TDOC.N), down 66% in past 12 months. Ark Invest owns about 10% of Teladoc, making it the virtual healthcare company’s largest shareholder, according to Refinitiv.

Zoom on Monday is down 2.3%, while Teladoc is dropping over 5%.

Top Ark Innovation holding Tesla (TSLA.O) is down just 0.4%. Tesla now accounts for about 8% of the ETF’s holdings, down from over 10% in mid-December, according to data on the Ark’s website.

Ark Innovation holdings

Even as the Ark Innovation fund tanked last year, investors poured almost $5 billion in new money into the ETF, according to Refinitiv data. So far in 2022, they have pulled out about $35 million, per Refinitiv.

(Noel Randewich)

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BCA RESEARCH IS CAUTIOUSLY LONG AUSSIE DOLLAR AT US$0.70 (1135 EST/1635 GMT)

BCA Research, in its latest research note, finds opportunity in going long the Australian dollar at US$0.70. With COVID-19 continuing to ravage Australia and the country adopting strict measures such as threatening to deport superstar athletes who are unvaccinated, its economic outlook remains downbeat in the near term.

But such a dour view opens the door to be cautiously optimistic on the Aussie dollar, BCA said. It noted that positioning-wise, speculators in the futures market have been extremely short the currency, suggesting a reversal is looming.

In addition, low interest rates are re-introducing froth in the Australian property market, with housing prices in Sydney and Melbourne rising close to 20% year-over-year. Also most inflation measures are also higher than the midpoint of the Reserve Bank of Australia’s target.

BCA noted that should China (Australia’s biggest export partner) ease monetary policy, this should spur a recovery in global trade, allow the RBA to walk back its dovish rhetoric, and boost interest rate support for the Aussie dollar.

The Australian dollar was last down 0.3% versus the U.S. dollar at US$0.7172 .

Gertrude Chavez-Dreyfuss

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TOP POTENTIAL Q4 AND 2022 EARNINGS HEADWINDS: OMICRON, WAGE GROWTH, TAXES (1100 EST/1600 GMT)

Citigroup (C.N), JPMorgan Chase & Co (JPM.N) and Wells Fargo & Co are due to report results on Friday, thereby firing the un-official starter pistol for fourth-quarter earnings season.

So what should market participants be listening for during earnings calls this go-around?

In his Weekly Kickstart note, Goldman Sach’s chief equity strategist David Kostin identifies three ongoing areas of concern for investors: “growth threats from Covid variants, margin pressures from input cost inflation, and potential tax reform.”

Regarding the current headwinds posed by Omicron, Kostin fingers the COVID variant as being at least partly responsible for GS economists cutting their 2022 economic growth forecast to 3.5% from 4.2%, adding that each percentage point shaved from GDP “translates into roughly $7 of S&P 500 EPS.”

With respect to rising input costs and the resulting pressure on margins, the note identifies rising wages as the main culprit, as companies faced with a labor shortage struggle to attract workers.

GS economists see wage growth cooling over the next several quarters to “around 4” from the 4.7% annual growth seen in December’s employment report released on Friday.

“Firms with high labor costs or exposure to wage inflation will face the most difficulty in preserving margins,” writes Kostin, who notes that throughout the fourth quarter, companies with “high and stable gross margins … outperformed those with weak and variable margins by 12 pp.”

Finally, Kostin turns his attention toward the possibility of President Joe Biden’s “Build Back Better” bill, which he says “would have mixed implications for U.S. equities.”

Should the legislation be signed into law this year, GS estimates its tax reform “would reduce S&P 500 EPS by 2-3% relative to current tax policy but only go into effect in 2023 at the earliest.”

For now, analysts see S&P 500 companies, on aggregate, year-over-year fourth-quarter earnings growth of 22.4%, according to Refinitiv. That would mark the slowest quarter of 2021, a year that benefited from easy comparison to the pandemic-shock of 2020.

The graphic below, courtesy of Refinitiv, provides historical and estimated S&P 500 annual growth rates (click to enlarge):

Earnings growth

(Stephen Culp)

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U.S. STOCKS SLIDE AS RATE JITTERS BUILD (1002 EST/1502 GMT)

Major U.S. indexes are sharply lower in early trade on Monday as heavyweight FANG and technology stocks dropped on expectations of a high interest rate environment.

With this, the U.S. Treasury yields climbed to new two-year highs. Indeed, the U.S. 10-Year Treasury yield is pushing back over 1.80%.

That said, the S&P 500 Banks index (.SPXBK) has now turned slightly red, and all major S&P 500 (.SPX) sectors are down on the day.

Meanwhile, the Nasdaq Composite (.IXIC) has violated its rising 200-day moving average, which now resides around 14,688. The IXIC last closed below this long-term moving average on April 21, 2020. With its loss, the IXIC now stands down around 9% from its November-19 record close.

Of note, the IXIC’s daily RSI has now fallen to its most oversold level since May 2021.

Here is where markets stand in early trade:

earlytrade01102021

(Terence Gabriel)

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NASDAQ COMPOSITE: YIELDING TO THE DOWNSIDE (0900 EST/1400 GMT)

With CME e-mini Nasdaq 100 futures suggesting the Nasdaq 100 index (.NDX) is poised to fall more than 1% in early trade, it appears likely that the Nasdaq Composite (.IXIC) will violate its December lows. read more

In so doing, the tech-laden Composite will be on track for a fifth-straight down day. The IXIC last fell five-straight days in late-September/early-October 2021.

Meanwhile, tech (XLK.P) is quoted down ahead of the open, putting the S&P tech sector (.SPLRCT) also on track to fall for a fifth-day in a row, which would be its longest losing streak since a seven-day slide in late-April/early-May of last year.

On the Composite, once its December lows give way, the next significant support can be the rising 200-day moving average, which ended Friday around 14,680. The Composite has not closed below this longer-term moving average since April 21, 2020:

IXIC01102021

There is chart congestion in the 14,211/14,175 area that includes a number of significant 2021 highs and lows. The 23.6% Fibonacci retracement of the entire March 2020/November 2021 advance is at 13,951.

Of note, the IXIC’s daily RSI ended Friday at its lowest level since the Composite’s October 4 low. That said, the rising U.S. 10-Year Treasury yield remains a drag on growth/tech shares, and, therefore, a thorn in the Composite’s side. The rolling 10-day correlation between tech and the 10-year yield is now -0.88, or a strong negative relationship. read more

However, the 10-year yield is on track to rise for a seventh-straight day, which would be its longest such streak since an eight-day run of gains in April 2018. So, on the plus side for Nasdaq bulls, at least shorter-term, just as the IXIC may be getting stretched to the downside, yield may be getting stretched to the upside.

(Terence Gabriel)

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Terence Gabriel is a Reuters market analyst. The views expressed are his own

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