Dow Today – LIVE MARKETS Tougher year ahead for U.S. muni market – Barclays
- Major U.S. indexes gain: transports, banks outperform
- All major S&P sectors green with utilities leading
- Euro STOXX 600 index ends up ~1.3%
- Dollar up; gold ~flat; bitcoin falls; crude up >3%
- U.S. 10-Year Treasury yield rises to ~1.40%
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After a “very strong” 2021, the U.S. municipal bond market faces a weaker 2022 as fixed-income assets grapple with high inflation and possible rate hikes by the Federal Reserve in next year’s second half, according to Barclays analysts.
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The $4 trillion market where states, cities, schools, and other issuers sell debt has gotten a boost from massive federal aid and the economic recovery from the COVID-19 pandemic.
“Nevertheless, we are a bit concerned that the peak in credit quality may have already been reached, helped by federal funding that is unlikely to be available in the coming years, while spending has increased to its record and it might not be easy to curb it when additional funds are not available,” the analysts wrote in a credit research report.
They added that they don’t see much potential upside next year despite an outlook for market technicals remaining largely supportive and with municipal credit currently in “very good shape.” Ratios between tax-exempt munis and taxable U.S. Treasuries, as well as credit spreads, are expected to move somewhat higher in 2022, according to Barclays.
“We therefore expect municipal returns to be subdued next year, when investors will likely be happy just with earning carry on their bonds, if that,” the report said.
UTILITY SHARES GET THEIR POWER ON (1130 EST/1630 GMT)
As Omicron concerns have made investors more wary they’ve been buying bonds and taking a keener look at more defensive stocks, causing sleepier sectors like utilities to wake up in a hurry.
The S&P Utilities index (.SPLRCU) gapped up today for the first time since Oct. 19, and is last up nearly 2.5% on the day and on track for its biggest one-day percentage gain since early March.
If it holds its ground for the session, it would also post a fourth straight day of gains for the first time since early July.
Within the sector there isn’t a single stock in the red so far on Monday, with the biggest gainers Southern Co (SO.N) and NRG Energy (NRG.N), both up more than 4%.
Of note, the recent decline in U.S. Treasury yields may be helping to boost the sector. The U.S. 10-Year Treasury yield has declined nearly 30 basis points over just eight sessions, putting it in the 1.40% area.
Meanwhile, according to Refinitiv data, the utilities sector boasts a 3.1% dividend yield, potentially making it an attractive alternative. The overall S&P 500 dividend yield stands at around 1.8%.
With Monday’s gain, SPLRCU now stands down about 3% from its February 18, 2020 all-time high:
(Sinéad Carew, Terence Gabriel)
U.S. STOCKS MIXED, GROWTH SHARES STUMBLE (1000 EST/1500 GMT)
Major U.S. indexes are mixed in early trade Monday. This as Omicron and taper fears continue to simmer in the background.
In any event, investors are favoring banks, energy and economy-linked stocks against technology and growth-heavy shares. The S&P 500 banks index (.SPXBK) is up more than 1.5%, while the Philadelphia Semiconductor index (.SOX) is off more than 2%.
As a result, the S&P 500 growth (.IGX)/S&P 500 value (.IVX) ratio is declining for a fourth-straight day. The ratio is now down more than 4% in December, which puts it on track for its biggest monthly drop since a 5.4% slide in February. That February drop was the biggest monthly percentage decline for growth relative to value since May 2002.
Here is where markets stand in early trade:
Given CBT e-mini Dow Futures’ premarket gains, the Dow Jones Industrial Average (.DJI) appears poised to bounce more than 200 points early in Monday’s regular trading session.
This as more economically-sensitive stocks show strength, while big-cap tech struggles.
On Wednesday of last week, the DJI ended below its 200-day moving average (DMA) for the first time since July 13, 2020. In so doing, the blue-chip average threatened to close below its 40-week moving average (WMA) for the firs time since July 10, 2020.
However, a broken weekly log-scale resistance line from 1929, which has been acting as support over the past 6 months or so, once again contained weakness read more :
The line was around 34,000, while the Dow’s low last week was 34,006.98. The DJI was then able to rally and end Friday at 34,580, or slightly above the 40-WMA, which was at 34,557.
Despite the bounce, weekly momentum continues to deteriorate. The MACD has fallen to its lowest level since mid-August 2020. Therefore, unless momentum turns favorable, any further bounce in the Dow may prove short-lived.
The 10-WMA is now resistance at around 35,340, which is slightly above last week’s Dow high at 35,287.91.
A weekly Dow close below the support line, which ascends to around 34,050 this week, can suggest potential for a much deeper decline, given that this line has consistently contained Dow declines since late May. read more
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Terence Gabriel is a Reuters market analyst. The views expressed are his own
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