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CHIP STOCKS BOUNCE BACK WHILE INVESTORS AWAIT OMICRON INFO (1345 ET/1845 GMT).
U.S. semiconductor stocks are rising on Monday, following Friday’s coronavirus-driven saleoff. The mainchip index is less than 1 % away from its previous record closing height.
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The broad tech rally was led by chip stocks as investors second-guessed Friday’s 2% decline in the Nasdaq (.IXIC), and awaited further information about the Omicron coronavirus variant.
The Philadelphia Semiconductor Index,.SOX, was last up 3.5%. This is more than the nearly 3% drop that occurred on Friday. The SOX is now down 0.5% from its record-setting close on Nov. 19.
Nvidia (NVDA.O.) and Qualcomm (QCOM.O.O.) both jumped above 4% and lifted their SOX indexes more than any other company.
Micron Technology, a memory chip manufacturer, jumped 2.5% after DigiTimes reportedIn a story citing industry sources it was stated that DDR3 memory-chip prices would likely recover by early 2022.
The chip index has risen 39% since Monday’s rebound.
VOLATILITY SPIKES CAN DRIVE ROBUST REVERSALS – CREDIT SUISSE (1315 E ET/1815 GMT).
News of the Omicron COVID-19 variation sent markets into a tailspin Friday to the tune of a 2.3% fall in the S&P 500(.SPX) and a 3.7% drop in the small cap Russell 2000(.RUT), oil prices dropping about $10, and the yield on the 10-year U.S. Treasury Note falling as low as 1.47%.
Jonathan Golub, Credit Suisse’s chief U.S. equity strategist, said that investors had been weighing pandemic concerns less than inflation, stock valuations, and central bank policy, prior to Friday’s news.
Investors may not make investment decisions until they have more clarity on Omicron. However, Golub points out spikes in volatility such as Friday’s jump of 10 points to 28.6 on the CBOE Volatility Index (.VIX). “equity returns tend to be twice as rich during periods of heightened volatility, with small caps leading the charge.”
Golub reports that if the VIX is higher than 15, the 2 months of subsequent return are 2.9% for S&P 500 and 3.5% respectively for Russell 2000. This jumps to 5.1% for the S&P 500, and 6.7% for the Russell 2000, respectively, if the VIX is higher than 20.
OIL CAPACITY SHOCKS COULD MEAN $150 A BARREL BY 2023 – JPMORGAN
Analysts at JPMorgan believe that oil producers will experience capacity shocks over the next two years, which could lead to oil prices jumping to $125 per barrel in 2022 and $150 in 2023.
Brent crude oil prices have declined since hitting an all-time high of $86.70 per barrel on Oct. 25, but prices remain elevated at $76.14 per barrel. JPMorgan believes the problem is getting worse because of the underinvestment in this sector over the last 18 months.
The bank expects that OPEC+’s spare capacity will be around 2 million barrels a day in 2022, which is 43% below consensus estimates of 4.8 million barrels a day, and sees the group’s total capacity shortfall extending to 3 million barrels a day by the first half of 2024, compared to OPEC+’s target of 49.1 million barrels a day in that time frame.
OPEC+ “has returned to a (position) of positive leverage, which it will defend by keeping inventories low, the market in balance and taking action to support optimal reservoir management through paced volume growth,”According to analysts.
JPMorgan believes that long-term oil prices at $80 per barrel will be required to stimulate investment in capacity growth. Oil is expected to trade at this level starting 2024.
However, prices are expected rise to $90/barrel in 2022 and $104/barrel in 2023. Overshoots of $125/barrel in 2022 and $150/barrel in 2023 are possible, the bank stated.
EUROPEAN STOCKS – NIBBLING ON DIP (1155 ETD/1655 GMT).
Glass half full: Investors bought this dip!
Half empty glass: Investors didn’t buy much!
European stocks ended the day 0.7% higher, which is a small rebound considering Friday’s 3.7% pan-European STOXX 600 loss.
“Dip buyers are emerging across a host of sectors, and as ever it will take a while for the market to claw back all the losses suffered last week”Chris Beauchamp (IG Chief Market Analyst), wrote:
Some analysts warned today that there are so many unanswered queries about the omicron version that a “wait-and-see” strategy is likely to be a popular choice among investors.
However, oil prices have boosted energy stocks and are the clear winners of this session with a 2% increase. This is a large part of the credit for the modest bounce back.
Travel and Leisure shares also rebounded with a 1.8% gain, but again, this is a small difference compared to Friday’s 8.8% decline.
Hotel operator Accor lost 0.8 and 0.3%, respectively, as a sign of lack of conviction in the sector.
Wall Street’s tech frenzy is not all about Europe. However, some of it has been reflected in European shores. The sector’s index rose 1.6%, while the S&P technology rose 2.2%.
The worst performers were the car makers, who lost 0.3%. This was exacerbated by France’s Faurecia which fell 7.9% and cut its guidance for the second year in a row.
HOMES FOR THE HOLIDAYS – PENDING HOME SALES JUMP to 10-MONTH HIGH (1105 ET/1605 GMT).
Monday’s data on the housing market supported the view that the sector, despite slowing due to its own success, still has some gas left.
According to the National Association of Realtors (NAR), U.S. pre-owned homes sales (USNCH=ECI), soared by 7.5% last months, surpassing consensus and posting a decisive rebound after September’s 2.4% decrease. Read more
The index saw an increase of 5%, which brought it to its highest print for ten months. It now hovers well above pre–COVID levels.
“This solid buying is a testament to demand still being relatively high, as it is occurring during a time when inventory is still markedly low,”Lawrence Yun is the chief economist at NAR.
Although the initial threats and subsequent lockdowns surrounding the pandemic seem to have subsided, it is not clear that its effects will disappear anytime soon. This is evident by the Omicron variant. Read more
Therefore, the demand for elbow space and home office space is strong. Many potential buyers are finding additional impetus through rising rents or interest rates.
“Motivated by fast-rising rents and the anticipated increase in mortgage rates, consumers that are on strong financial footing are signing contracts to purchase a home sooner rather than later,” Yun added.
The initial suburban flight drove inventories into record lows, even though homebuilders struggled with land scarcity as well as a weak supply chain to replenish those inventories.
These factors pushed home prices into a new high, and far beyond the reach of many potential buyers.
Rubela Farooqi is the chief U.S. economist for High Frequency Economics. She points out that both inventories as well as home prices have shown signs of easing in recent years.
“Inventories, while they have declined over the last three months, have moved up from lows earlier this year,”Farooqi said. “Gradually easing supply constraints should be a positive for existing home sales over time.”
Pending home sales
A potential home sale is considered ‘pending’ after the contract is signed. This data can be used as a predictor of actual home sales one month or two later.
Like the Commerce Department’s Building Permits Report, which also showed a nice rebound last October, pending home sales are one of the sector’s most forward-looking indicator.
However, the stock market is the most forward looking indicator. It shows where investors believe the housing industry will be six months to one year down the line.
Nearly the entire first year of the pandemic, Philadelphia SE Housing (.HGX), the S&P 1500 Housing Building index(.SPCOMHOME), outperformed the wider S&P 500.
The graph below shows that index performance compared to a year ago has converged. However, the SPCOMHOME has seen an increase in late, echoing the recent rise in NAHB’s Homebuilder Sentiment Index.
Wall Street was moving sharply higher before the data hit. This rebounded from Friday’s steep selloff due to renewed pandemic fear in the form our newest addition, ‘Omicron.
The Nasdaq has risen to the top of the pack thanks to the stay-at-home players, namely the market-leading tech megacaps.
OMICRON RECOVERING? GIVE MARKETS 10 DAYS (0959 ET/1559 GMT)
Markets have shifted from panic selling towards dip-buying quickly, but main equity benchmarks remain at levels well below those they were before Omicronjitters wiped $2 Trillion off stock markets worldwide.
One might wonder at this point how long it would take to make a complete recovery.
Mediobanca examined market behavior in October last year, when the Delta variant was first discovered.
It took 10 days for the virus to rebound and reach new heights back then. This suggests that the recovery process this time around should be quicker, considering the fact that the number of vaccines is higher and the time it takes to market new shots is shorter.
“We might be back to highs quite soon,”The email was sent by the Italian investment bank to clients.
U.S. FUTURES BOUNCING AFTER OMICRON SELL-OFF (0815 ET/1315 GMT)
U.S. equity futures pointed towards a higher open Monday after Friday’s sharp selloff in a short post-Thanksgiving holiday period fueled by the discovery of a new coronavirus variant in South Africa.
A top South African infectious diseases expert said Monday that existing COVID-19 vaccinations should be highly effective in preventing severe disease and hospitalizations due to the new variant. Later in the day, President Joe Biden would update the public about the new variant and the U.S. reaction. Continue reading
The Dow Industrials (.DJI), experienced its largest one-day percentage fall since October 2020. On Friday, the S&P 500 was hit with its biggest daily percentage decline since February 25th. Markets were rattled by concerns about the new version. Analysts however believe that the selling was likely exacerbated because of the low volume trading session.
Oil prices fell to $10 per barrel on Friday. However, they are now up by about 5%. Travel-related stocks like American Airlines (AAL.O), and Norwegian Cruise Lines (NCLH.N) have also recovered ground after falling on Friday.
Below is your premarket snapshot
Futures rise after Friday’s selloff
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