Before The Bell
On Tuesday, the major domestic stock market indexes broke a three-day losing streak, posting decent gains. Though investors are now hoping that a “Santa Claus” rally will take hold in the final days of 2021, today’s stock futures are pointing to a mixed opening.
Share-price volatility has eased some from elevated levels at the end of November, as investors find that the problems worrying them may be more surmountable than they’d feared. The Omicron variant of the coronavirus is spreading fast in the United States and overseas, but fortunately does not appear to cause severe illness or require lengthy hospitalization. Domestic politicians don’t have much of an appetite for re-imposing drastic widespread restrictions on public gatherings, and at this juncture, it does not seem likely that the already stressed global supply chain will come under markedly greater pressure. That said, China’s reaction to Omicron bears watching, given that the major exporter has previously shown a zero-tolerance stance toward the virus. Meanwhile, the Federal Reserve is pulling back on its accommodative monetary policy by reducing bond purchases. The Fed has penciled in three modest rate hikes for 2022, which should help to contain inflation without meaningfully harming U.S. employment and economic growth. Inflation may well have peaked, and the current supply/demand imbalance in the consumer goods sector will probably slowly correct over the next several months. Additionally, more people should soon return to work, providing companies with a modicum of relief on the wage front.
November existing home sales data is set to be released today, followed on Thursday by reports on recent jobless claims, U.S. consumer spending, and new-home sales. The entry of millennials into the marketplace and continuing low mortgage rates suggest another month of positive progress in existing and new home sales, despite limitations caused by low house inventories and high costs for building materials and labor. Jobless figures should be favorable, since employers are endeavoring to hold on to the staff they already have; the resultant higher wages, along with elevated savings and increased inflation, likely raised consumer spending last month.
In Tuesday’s stock market trading, the energy, technology, financial, consumer discretionary, healthcare, and real estate sectors all moved higher, while utilities and consumer staples were a bit of a drag on the overall indexes. Standout performers for the day included Micron Technology (MU), Expedia Group (EXPE), and Citrix Systems (CTXS). Among the laggards were General Mills (GIS), Kroger (KR), and Clorox (CLX).
In the days and months ahead, economic data releases will surely have an impact on stock prices, as will corporate news in the upcoming earnings season and progress, if any, on President Joe Biden’s Build Back Better legislation, which promises greater spending on public education, healthcare, and climate change related initiatives. In the face of these continued uncertainties, we would not be surprised to see heightened share-price volatility persist. Current trends have prompted a stock market sector rotation away from technology issues toward cyclical holdings, and new money flowing into the market appears to be concentrated on energy, materials, financial, and industrial stocks.
– David Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
