Dow Today – LIVE MARKETS Low income earners brush off great inflation expectations
- S&P, Dow down; Nasdaq green; small caps rally
- Financials weakest S&P sector; real estate biggest gainer
- Euro STOXX 600 index falls ~0.5%
- Dollar, gold rise; crude, bitcoin decline
- U.S. 10-Year Treasury yield falls to ~1.40%
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(LOW) INCOME EARNERS BRUSH OFF GREAT INFLATION EXPECTATIONS AS WAGES GROW (1130 EST/1530 GMT)
Lower income households are expecting to spend more even as they anticipate higher inflation, supported by wage growth as a strong labor demand continues to pull people into the jobs market at higher wages.
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Near-term annual inflation expectations have climbed to an all-time high of 6% in November 2021, while spending intentions have also jumped to an record year-on-year high of 5.7%, driven largely by a 9.2% jump among the lowest income earners, according to NY Fed’s Survey of Consumer Expectations.
Recent rise in wages among this income group could support these spending aims. When economists at Morgan Stanley looked at COVID-CPI for low income households it was running at an annual 5.0% pace (August-October 2021 average) compared to average hourly earnings for lower-wage industries running at 7.4% year-on-year, putting annual real wage growth for lower-wage earners at 2.4%.
“The holiday shopping season appears poised to be a record-breaking one, and lower-income cohorts seem to be operating with relatively better buying power,” they write.
Moving into 2022, Morgan Stanley expects energy prices to ease after peaking in November and supply chain disruptions to lessen their hold on inflationary pressures.
This, coupled with continued job and wage growth backed by a strong labor demand, should in turn boost consumer confidence.
That is, unless Omicron throws a wrench in these plans.
(Bansari Mayur Kamdar)
BULLS SCATTER (1043 EST/1543 GMT)
The percentage of investors with a bullish short-term outlook for the U.S. stock market has slid to its lowest level in three months in the latest American Association of Individual Investors Sentiment Survey (AAII). With this, the number of investors describing their outlook for stocks as bearish rose to the upper end of its historical range.
AAII reported that bullish sentiment, or expectations that stock prices will rise over the next six months, fell 4.5 percentage points to 25.2%. This is the fourth consecutive week that bullish sentiment remains below the historical average of 38.0%. Bullish sentiment was last lower on September 16, 2021 (22.4%).
Bearish sentiment, or expectations that stock prices will fall over the next six months, gained by 8.8 percentage points to 39.3%. This is bearish sentiment’s fourth consecutive week above the historical average of 30.5%.
Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, declined by 4.3 percentage points to 35.4%. This is the second consecutive week that neutral sentiment is above the historical average of 31.5%.
AAII noted that bullish sentiment is at an unusually low level. Historically, unusually low levels of optimism have been followed by better-than-average and better-than-median returns for the S&P 500 index over the following six- and 12-month periods.
Additionally, AAII said that bearish sentiment is near the top end of its typical range, as noted above. The breakpoint between typical and unusually high levels of pessimism is currently 40.1%.
With these changes, the bull-bear spread fell to -14.1 from -0.8 last week read more :
WALL STREET WEARS RED AGAIN (0955 EST/1455 GMT)
Wall Street slid into the red right out of the starting gate on Friday as investors, with little or no catalysts to chew on, continued to acclimate themselves to the new normal of pending rate hikes and tapering asset purchases from the Federal Reserve.
All three major U.S. stock indexes are sharply lower, with energy (.SPNY), financials (.SPSY) and materials (.SPLRCM) all vying for the title of biggest loser.
Indeed, in a change from the previous trading day, value stocks (.IVX) are faring worse than growth (.IGX).
The S&P 500 and the Nasdaq are on track for their third weekly decline over the last four, and the Dow has set a course for its fourth losing week in the last five.
New York Federal Reserve President John Williams, in an interview on CNBC, parroted Fed Chair Jerome Powell’s Wednesday remarks that inflation and other economic data will be closely watched in the coming months for clues regarding the Fed’s taper timeline and rate hikes. read more
The word ‘Omicron’ remains on everyone’s lips as the nature and extent of this latest COVID variant is causing scientists to reconsider their 2022 expectations for the pandemic. read more
Today is ‘Triple Witching’ (nee ‘Quadruple Witching’ until OneChicago ceased offering single stock futures in September 2020), which is the simultaneous expiration of stock options, stock index futures, and stock index options contracts which takes place once every quarter.
Triple witching can cause an increase in trading volume and/or volatility.
Here is your opening snapshot:
S&P 500: ON THIN ICE? (0900 EST/1400 GMT)
The S&P 500 index (.SPX) ended at a record high of 4,712.02 on December 10. It has since backed away from that level by only about 1%.
Meanwhile, however, the percentage of S&P 500 stocks trading above their 50-day moving average (DMA) remains severely depressed relative to earlier in the year, when the SPX was much lower:
This measure’s divergence vs the S&P 500 has been a problem for quite some time. In April, it peaked at 92%. More recently, in mid-November it could only hit 74%. Currently, only around 54% of SPX stocks are trading above this closely followed intermediate-term moving average.
That said, recent sub-30% lows in this measure offer the potential that enough stocks within the benchmark index may have become sufficiently washed out, that there may be potential for a rotation away from the few tech titans driving the index, and a broader advance to take hold. read more
There were a number of lows from the late-spring to early-fall 2019 in the 27%-31% area. In September and October 2020 there were lows at 25% and 28%. More recently, in September and November this measure stabilized at 24% and 29%. read more
A push above the December high, at 63%, may lead to increasing momentum, and see this measure push up above 75%.
Conversely, a fall below this week’s low, at 50%, may see downside pressure intensify, which may become increasingly difficult for the SPX to endure, especially if the recent lows give way.
Of note, in the severe S&P 500 declines in late-2018 and early-2020, this measure bottomed very close to zero.
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Terence Gabriel is a Reuters market analyst. The views expressed are his own
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