MARKETS IN REAL TIME Wall Street has suffered losses for the second week
Jan 14 - We welcome you to the home for real-time markets coverage hosted by Reuters reporters.
LOSSES FOR THE 2ND WEEK (1610 EST/2110 GMT) IN WALL ST
On Friday, the S&P 500 and the Nasdaq closed their session higher, but all three major U.S. stock indexes fell once more for the week.
The Dow underperformed the other two major indexes, closing lower on the day, in a reversal from the recent trend. Since December 31, the S&P 500 is down about 2.2 percent, while the Nasdaq is down 4.8 percent, and the Dow is down just 1.2 percent.
The S&P 500 growth index finished up 0.2% on the day, while the value index dipped 0.1% even as US Treasury yields rose.
Shares of major banks, including JPMorgan Chase, were weighed on the Dow, but the company has dropped 6.1 percent.
The S&P 500 bank index, which has dropped to new highs, has experienced a sloppy start to the fourth quarter of the US earnings period.
Investor uncertainty exacerbates the disappointing of retail sales statistics in the United States.
Here is the closing market snapshot.
MARCH IS STILL A LONG WAY AWAY FOR FED (1330 EST/1830 GMT)
The Federal Reserve will begin its tightening process as soon as March, with a large possibility of four cruises on deck in 2022.
Lee Ferridge, the head of North America's macro strategy at State Street Global Markets, believes the market might be ahead of itself.
Ferridge tells Reuters on Thursday that a lot of moving things are ahead of us (to March).
He cites uncertainty over how much the Omicron-led increase in coronavirus cases dampens economic activity as well as statistics showing the labor market has not completely recovered from the Covid-19 accident.
Jobless complaints in the United States have increased more than anticipated, and Ferridge points to a decrease in real average hourly earnings on a yearly basis as further evidence of a shaky labor market, which might indicate there's still a way to attain maximum employment.
"Although we are fully priced in March and have about four increase rates scheduled for 2022, there's an obvious possibility that we take out some of that pricing."
The Federal Reserve's expected rises are falling short of market pricing, although it anticipates the first rate increase in March or May.
"The Fed may find it prudent to slow down its tightening later this year, particularly if it is also launching an early start to quantitative tightening," said PGIM economist Judy Gaske in a Thursday note.
According to Ferridge, the most effective way to play this "overconfident" trade is through the dollar. Especially if the Fed slows the rate hikes when it establishes quantitative tightening, it is likely.
"A lot of people have started the year overweight the dollar based on the normalization of policy, and it's not reacting in the right way, there might be more to go," he says.
BULLISH SENTIMENT SLIDES FOR FOUR-MONTH LOW: AAII SURVEY (1330 EST/1830 GMT)
The number of individuals who describe their stocks as "battle" and "neutral" has increased, according to a recent survey by the American Association of Individual Investors.
The Optimism of the day was last down on September 16 as expectations stock prices would increase in the next six months by 7.9 percentage points to 24.9%, according to the AAII Sentiment Survey, conducted in the seven-day period ending Wednesday.
For the eighth week in a row, the bullish sentiment is below its historical average of 38.0%, whereas expectations stock prices will fall the next six months by 5.0 percentage points to 38.3%, but it is above the 30.5% historical average for bearishness.
In the sixth week in a row, expectation that stock prices remain essentially unchanged over the next six months increased by 2.9 percent to 36.8%.
The coronavirus, including the unrelenting return to normalcy, monetary and fiscal stimulus, and inflation are the big concerns about the stock market's perspective. Other factors include earnings, valuations, and the Biden administration's initiatives.
LED BY 1% DOW DROP (1250 EST/1750 GMT)
In afternoon trading Friday, major US stock indexes were down, led by a more than 1% decline in the Dow, while Wall Street's fear gauge, and the Cboe Volatility index were higher.
JPMorgan Chase is the largest loser on the S&P 500, despite reporting a weaker performance at its trading arm.
The S&P 500 bank index has been down 2.3 percent on the day due to mixed results from other major banks.
Here's the early afternoon market snapshot in the United States.
EUROPE WEEK 2: 15% GAP BETWEEN TECH AND BANKS (1150 EST/1650 GMT)
The session concludes with a second week of European stocks suffering from a 1.4% drop since the beginning of the year.
While the performance of the pan-European STOXX isn't that spectacular, the gap between winners and losers is reelle.
In early 2022, there is a slew of possibilities to discover how a rapid inflation/monetary tightening cycle can happen for equities.
Consider this: European banks have increased by 9% so far in 2022, while tech firms have decreased by 5.4 percent, bringing a gap of over 15% in two weeks.
While many central banks are anticipating - and are hoping - that inflation will peak later this year, the sectors that are typically boosted by rising prices are thriving.
Oil & gas prices in 2022 are up 2.9 percent, as well as miners 6.6 percent, and insurers 5.9 percent.
The price of EVs is a hit for European businesses and they are up 8%.
For defensive sectors such as healthcare, this is a different story.
Here are some examples of how the STOXX 600's sectors went today and so far this year:
BANKING ON IT: VALUE STOCKS TOP PICK FOR THE LONG TERM (1130 EST/1630 GMT)
Bank stocks - which perform well in inflationary periods - are on investors' lists as they are expected to benefit from higher lending margins.
Summit Global Investments' chief investment officer, Dave Harden, has picked value stocks over growth in the long-term and predicts a "tremendous year" for US banking stocks in 2022, despite the tumble they made on Friday.
The S&P 500's banking sector rose 9.5 percent last week as Treasury yields rallied on rate rise expectations compared to a 1.9% fall in the benchmark index. Harden expects at least three Federal Reserve hikes with above a 60% chance of a fourth.
According to Vanda Research's weekly report on retail flows, retail investors have increased their exposure to lenders' equities.
Financials were among the most sought after equity firms in recent history, with small-time investors picking up $289 million over the last week versus an average of $190 million over the past two years, according to the report.
Harden told the Reuters Global Markets Forum on Thursday that JPMorgan and Bank of America will continue to outperform in 2022. Outside banking, he believes Meta Platforms is a contrarian position he holds.
"People seem to be haters here, as Meta Platforms is very cheap -- bottom quartile -- compared to other large Tech names. But their growth is above average and their margins are top quartile, according to me.
(Sanjana Shivdas, Aaron Saldanha)
ER, DATA: A FRIDAY ECON WRAP-UP (1100 EST/ 1600 GMT)
On Friday, a huge amount of data on market participants was released, as well as a pack of dobermans. It was chock full on mostly unpleasant surprises, which provided fresh reminders that U.S. consumers and the economy are still being dogged by Omicron, hot inflation, and a tangled supply chain.
According to the Commerce Department, the exchange rate and retail prices in the United States decreased unexpectedly by 1.9 percent last month.
The decline was large based on line-by-line, with non-store retailers (which includes online and catalog), and department stores experiencing the most significant declines, tumbling by 8.1 percent and 7.0% respectively.
The causes of this unpleasant surprise are mostly inter-related, as spiking COVID cases kept shoppers at home, but wile pandemic-related supply issues kept goods scarce, and prices increased.
"We were fortunate to see higher prices, empty shelves, and holiday shopping," says Anu Gaggar, a global investment strategist. "We were pushed forward even more than expected, and retail activity decreased even more than we thought.
Many consumers - in response to these supply challenges - seem to have started their holiday shopping earlier than usual, maximizing the discount price in October at the expense of December.
Core retail sales, which strip out autos, gasoline, building materials, and food services, are the closest proxy for the personal consumption component of GDP, have experienced an even greater unexpected drop, with a plunge of 3.1 percent.
Given the fact that the consumer makes over 70% of the US's economic growth, this is particularly troubling.
This month, consumers have been asked to consider the importance of mercury.
Consumer Sentiment, a preliminary statement from the University of Michigan, delivered a print of 68.8, under the even 70 consensus.
Attitudes about the current situation slid, but pessimism regarding near-term expectations caused the greatest damage.
Inflation weighed the most on consumers in the opening weeks of 2022, with near- and long-term inflation expectations rising to 4.9 percent and 3.1 percent respectively.
"While the Delta and Omicron variants contributed to this downward shift, the decline was also partly due to a rising inflation rate," writes Richard Curtin, a chief economist in UMich's Consumer Surveys. "Three-quarters of consumers ranked inflation... as the most serious problem facing the nation."
The question is about tidying up.
According to the Labor Department, the prices Americans pay for imported goods also defied consensus by inching 0.2% lower in December.
The fall in petroleum prices was largely caused by the decline, adding another voice to the growing chorus that the stubbornly persistent inflation wave, which has forced the Federal Reserve to shorten its timeline for tightening its COVID-era monetary policy, is at or near its peak.
Import price rise slowed year on year, down 1.3 percentage points to a still-blistering 10.1 percent.
According to Mahir Rasheed, a research scientist at Oxford Economics, "import prices should begin to unwind in Q2, as energy prices are rising and domestic demand is falling."
Despite the fall in December, the series remains so hot that other important indicators continue to cruise at an altitude far above the Fed's average annual 2% inflation forecast.
A second unwelcome surprise came when the Federal Reserve's industrial production report showed that production slowed unexpectedly by 0.1 percent in the last month of 2021.
Manufacturers are surprised by the drop in factory output, which is down 0.3 percent, in defiance of the expected 0.5% growth economists.
"We expect a soft headline, because we're less concerned about heating energy, and natural gas extraction has slowed by 7.3 percent," says Ian Shepherdson, head economist at Pantheon Macroeconomics. "But the softness in manufacturing is disappointing, and it can't all be blamed on the ongoing supply issues in the automobile industry, where production has dropped 1.3 percent.
Capacity utilization was also zagged where it was expected to zig, inching nominally lower to 76.5% instead of 77%.
Despite this, capacity utilization, coupled with a measure of economic slack, remains slightly above the threshold previously set before a global health crisis wreaked in the works.
The Fed's report is a powerful reminder of the unfavorable stance in the global supply chain, which continues to thwart under the pressure of rising demand, limited material availability, and lack of employees.
In addition, the value of goods in the store rooms of U.S. businesses increased by 1.3 percent in November, bucking the trend by attacking the bulls eye.
According to the Commerce Department statistics, the contribution of private inventories would not be reflected in the negative column when it came to the first half of 2021.
The data wolves and a mixed set of big bank earnings from JPMorgan Chase, Citigroup, and Wells Fargo have put investors in a selling mood in morning trading.
All three major stock indexes in the United States were red, with cyclicals and economically sensible transports down the most.
AS Q4 EARNINGS GATE OPENS (1005 EST/ 1505 GMT) BANK STOCKS STUMBLE
JPMorgan threw a hammer on investors, while Citigroup fell 2.4 percent on their reports. Only Wells Fargo's stock was in demand with a 1.4 percent increase.
The S&P 500 bank index was last trading down 2.0% on the day after reaching an intraday high in the previous day. It ended up up Thursday 10.4% so far for 2022 following a 32.3% rise.
Despite JPMorgan, the largest US bank that is a benchmark of the economy's health, Wall Street declined its profit by 14% due to a slowdown in trading, which is offset by a stellar performance in investment banking.
Thanks to a bumper deal, trading revenue decreased by 13%, while investment banking revenues increased by 28%.
Erika Najarian, an analyst for UBS, wrote in a note ahead of the conference call that JPM's expenses projections show the company's expenses forecast is 6% higher than consensus.
"This does not match the "beat and raise" narrative investors have for banks in 2022," she said.
On Friday, Citigroup reported a decrease in profit by 26% as it struggled to maintain higher expenses and decreased consumer banking efficiency.
In the second quarter, Wells Fargo beat analyst profit estimates, despite a rebound in economic growth in the United States encouraging more clients to take loans, and the bank kept a tight lid on costs.
Investors are worried about other important banks, although Morgan Stanley is down 2.6 percent and Goldman Sachs is down 2.4%.
WALL STREET EXCEMBER RISK-OFF (0915 EST/1415 GMT)
Wall Street stock futures traded lower on Friday after retail sales in the United States decreased instead of staying stable and banking results at the start of earnings seasons failed to provide a reason for improving the risk-off trend.
According to Reuters, retail sales fell 1.9% as a result of an increase of 0.2 percent in November, while economists said retail sales were unchanged.
JPMorgan Chase & Co's stock market fell after the company posted a 14% drop in fourth-quartre earnings despite a decline in its trading division. But analysts' estimates on its stellar results were not.
Citigroup slid as the bank reported a 26% decrease in quarterly earnings. But the company exceeded market expectations as strong gains in its investment banking business sat down the blow from rising expenses.
Wells Fargo & Co. has grown to a higher-than-expected fourth-quarter increase in pre-market activities.
Avant the opening bell, futures for the Dow Industrials, the S&P 500, and the Nasdaq slid all around 0.8%.
Here's a market snapshot:
NL8N2TU3IM IS PURPLE IN FOR FRIDAY'S LIVE MARKETS PRIOR TO 0900 EST/1400 GMT - CLICK HERE