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THE TRADING VS INVESTING BATTLE RAGES ON (1345 EST/1845 GMT)
Market plunges can be unnerving. In fact, Scott Wren, senior global market strategist at the Wells Fargo Investment Institute (WFII), says that sometimes they can force skittish investors to run for the hills, rather than see them as opportunities.
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As Wren sees it, since the S&P 500 (.SPX) recently broke below its closely-watched 200-day moving average on Jan. 21, and then subsequently reclaimed on Jan. 31, it's been a battle between traders seeking short-term profits and investors taking advantage of weakness to step in and buy equities.
Traders have their place, Wren said in a note on Wednesday, but a key piece of the puzzle on market pullbacks depends on your forward outlook, and WFII's remains "positive."
Looking out over the balance of 2022, WFII sees good economic growth, decelerating inflation, an improving labor market and strong corporate earnings growth. Therefore, WFII wants to "step in and be buyers when the stock market corrects."
Given that outlook, Wren continues to recommend both tech and communication services for "quality and growth components of portfolios."
In addition, Wren says investors can look to boost exposure to two cyclical sectors: financials and industrials. As for fixed income, Wren says favor municipal bonds and preferreds.
"In the current environment, expect more days where trader-induced volatility is met with buying coming from longer-term investors looking to take advantage of opportunities. We recommend being a buyer," said.
(Terence Gabriel)
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SICK OF OMICRON? FRIDAY'S JOBS REPORT WILL BE TOO (1228 EST/1728 GMT)
A big spike in the number people calling in sick from the Omicron variant early last month could skew the non-farm payrolls report for January to the downside when it's released on Friday.
Morgan Stanley is forecasting a 215,000 loss of jobs, a substantial downward revision to its previous forecast in what would be the first decline in the monthly U.S. jobs report since December 2020.
A Reuters survey shows economists expect 150,000 jobs were created in January.
Strong gains in the household survey should help the Federal Reserve view January's data as a one-off event as policymakers have said one bad month does not change the path of policy, MS said in a note.
Job losses are expected to be concentrated in the Covid-sensitive sectors of leisure and hospitality; trade, transportation and utilities and disproportionately in sectors that employ a high share of hourly paid workers, MS said.
Investors may have to wait for the February report early next month to better gauge labor demand and the underlying health of the jobs market, said Joe LaVorgna, chief economist for the Americas at Natixis.
The survey week for January employment began a day before the Census Bureau's Household Pulse Survey ended, LaVorgna said. The pulse survey showed more than 14 million Americans did not work from Dec. 29 to Jan. 10, he said.
"Given the sheer number of people impacted, rendering a verdict on the health of January employment may be next to impossible," LaVorgna said in a note.
(Herbert Lash)
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EUROPE FALLS ON ECB'S HAWKISH 'PIVOT' (1157 EST/1657 GMT)
Well, it was bound to happen some day!
With inflation running above 5% in the euro zone, it was only a matter of time before the European Central Bank would wake up and smell the coffee like the BoE and the Fed did a while back.
Nothing in particular was expected from the central bank's meeting today, but by declining to repeat that a rate hike was unlikely this year, the ECB's Lagarde signaled a real turning point.
Euro zone money markets rushed to price an almost 100% chance of 40 bps of hikes by year-end, from a 90% chance of 30 bps hikes before Lagarde's press conference.
"President Lagarde in today's press conference has clearly signaled a pivot from slow-moving calendar-based guidance to something far more active", Deutsche Bank analysts commented shortly after the presser.
Conclusion? "buy EUR/USD", said the investment bank and traders sure did!
The euro is currently up 1.25% against the dollar, its biggest jump since November 2020, and the yield on the Bund made its biggest jump since the market crash of March 2020.
At 0.15%, the yield of the German government 10-year bond is at a level unseen since 2019 and after nearly three years in negative territory.
There was also plenty of action across the old continent's equity market with the pan-European STOXX losing a chunky 1.8% as investors adjusted to what looks like the beginning of a new cycle.
European tech stocks, which were struggling to recover, got hit on the head and lost 3.4%. That put the sector's index 19% away of its November highs.
At the other end of the tightening trade, European banks had a mighty volatile session, but made it to the black with a 0.2% rise.
(Julien Ponthus)
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Q1 U.S. PROFIT FORECASTS DIP AS OUTLOOKS MORE NEGATIVE (1107 EST/1607 GMT)
Analysts' forecasts for first-quarter S&P 500 earnings are easing, with the ratio of negative-to-positive outlooks on the quarter rising.
"Growth is decelerating and outlooks provided by companies after reporting are modestly more negative than three months ago," Nick Raich, CEO of The Earnings Scout, wrote in a note Thursday.
At roughly the halfway point in the fourth-quarter 2021 earnings season, analysts have trimmed their profit growth expectations for the first quarter to 6.8%, down from 7.5% on Jan. 1, according to IBES data from Refinitiv.
At the same time, estimated earnings for the fourth quarter of 2021 is increasing, reflecting a typical pattern in earnings reporting where companies' results for one quarter mostly beat analysts' estimates, but they offer more conservative guidance on the following quarter.
Negative outlooks are up from recent quarters, however. So far, negative outlooks by S&P 500 companies on the first quarter outnumber positive ones by a ratio of 3 to 1. That ratio for the prior four quarter averaged just 1 to 1, based on a full season of outlooks. The longer-term ratio is 2.5 to 1, based on Refinitiv data.
(Caroline Valetkevitch)
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NASDAQ SLIDES AS FACEBOOK FACEPLANTS (1015 EST/1515 GMT)
U.S. stock indexes are lower on Thursday, with the Nasdaq (.IXIC) diving around 2%, as Facebook-owner Meta Platforms' (FB.O) dour forecast jolted the broader tech sector and threatened to upend a nascent recovery in stock markets.
Meta Platforms (FB.O) shares are being face-planted. The stock is losing around a quarter of its value. With this, the communication services (.SPLRCL) sector is the weakest major S&P 500 (.SPX) sector on the day. The FANG stocks index (.NYFANG) is losing more than 3%.
Of note, although all major S&P 500 sectors are falling, six of the 11 groups are down less than 1%, with financials (.SPSY) now just slightly negative.
The S&P 500 banks index (.SPXBK) is positive. This, with the U.S. 10-Year Treasury yield popping up to the 1.85% area.
Here is where markets stand early in the session:
(Terence Gabriel)
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WELCOME TO THE META-REVERSE, AKA THE FACEBOOK FOLLIES (0900 EST/1400 GMT)
With CME e-mini Nasdaq 100 futures sliding more than 2.5%, weighed down by a more than 20% premarket plunge in Facebook-owner Meta Platforms (FB.O), the Nasdaq Composite (.IXIC) appears poised for a downside reversal at the open.
This, after the IXIC rallied as much as 11% off its January 24 intraday low, including four-straight days of gains into Wednesday's close:
Despite the Composite's rise, it failed to overwhelm resistance at its January 10 low (14,530.226) on Wednesday. The IXIC stalled just shy of this level, reaching 14,504.816, before then slipping back. read more
Meanwhile, even with the recent rally, momentum is struggling. After falling to about 16, or its most oversold level since October 2018 read more , the daily RSI is struggling to muster enough strength to reclaim the 70.00 overbought threshold. It ended Wednesday at 53, and appears poised to turn down at the open.
On weakness, the IXIC's January 26 high, at 14,002, can now attempt to act as support. Breaking this level may see the index threaten, and potentially violate, its 13,094 January 24 low.
The next support is at the May trough at 13,002. March lows and the 38.2% Fibonacci retracement of the entire March 2020-November 2021 advance can be found at 12,786, 12,552, and 12,397.
In the event the Nasdaq tests, or breaks, its January low, traders will be watching to see if the IXIC's daily RSI can stabilize ahead of its recent low.
Of note, major IXIC bottoms in late 2018 and early 2020 were accompanied by this kind of momentum convergence pattern.
(Terence Gabriel)
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Terence Gabriel is a Reuters market analyst. The views expressed are his own
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