* Major US indexes rise; small caps outperform * Energy leads S&P sector gainers; tech, real estate slip * Dollar down; gold, NYMEX crude rally * US 10-Year Treasury yield ~0.96% Dec 23 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com S&P 500 TECH TAKES A BREATH AFTER RECORD HIGHS (1341 EDT/1841 GMT) Tech is Wall Street's weakest performer on Wednesday, marginally lower after hitting a record high the day before. The S&P 500 tech index .SPLRCT is down 0.1%, one of the only losing sector indexes during the penultimate session before Christmas. That compares to the S&P 500's .SPX 0.6% rise. The tech index has surged over 40% in 2020, with chipmakers and software sellers benefiting from the shift to working from home due to the coronavirus. Although the S&P 500 tech index is down on Wednesday, just over half of its components are higher, with Qualcomm QCOM.O and Intel INTC.O providing the largest lift, both up about 1.4%. This year's gains have left the S&P 500 tech index trading at about 27 times expected earnings, down from over 28 in September, but still far above its decade average of about 16, according to Refinitiv Datastream. (Noel Randewich) ***** THIS TIME IT'S NOT DIFFERENT (1221 EDT/1721 GMT) While Wall Street has long hesitated to bet against high-flying technology and growth stocks to the detriment of other sectors, investors have recently been changing their tune. For example, Richard Bernstein Advisors says it is leaning toward cyclicals, small caps and value stocks in the firm's 2021 outlook piece. While the firm's CEO of the same name notes in an email that some rotations have already started, he expects "12/31/21 performance will show value/small/cyclical as the leaders for the full year and significant underperformance by growth/large/stable." In a research note published earlier this week, Bernstein referred to the market during the COVID-19 recession as "Darwinistic" where "survival of the fittest determines stock performance." But when a recovery is in sight, Bernstein sees markets broadening. When more companies see improving earnings "investors no longer need to pay a high valuation to invest for growth" and instead they can "comparison shop for growth." So this type of shopping tends to favor "value over growth, small over large, and low quality over high quality." And Bernstein cautions against bets in the opposite direction. He argues that “This time is different” has historically been the kiss of death for investors as it "assumes the traditional business cycle has somehow been repealed." While every cycle has its own unique features, he says "history shows the business cycle is never repealed and “this time is different” comments are eventually proved wrong." (Sinéad Carew) ***** IS SANTA CLAUS COMING TO TOWN? (1131 EST/1631 GMT) Historically strong equity gains in December have prompted many to refer stock performance during the month as the "Santa Claus rally" but, in fact, the term is bit more nuanced. While the month boasts the third-best average return at 1.47% since 1945 and the highest frequency of advance at 73%, according to Sam Stovall, chief investment strategist at CFRA, the time-frame used to determine the Santa Claus rally is narrower. "If Santa should fail to call, bears may come to Broad and Wall," is the term coined by Yale Hirsch, creator of the Stock Trader's Almanac, who discovered the time frame for the Santa Clause rally is the final five trading days of the year and the first two of the subsequent year - making it set to begin tomorrow, on December 24. LPL Financial's senior market strategist Ryan Detrick took a look at how well those seven days have performed historically and found that since 1950, that stretch is up more than 77.9% of the time, more than any other similar period of the year. In addition, Detrick found those seven days are up an average of 1.33%, which is the second-strongest seven-day period of the year. "Whether optimism over a coming new year, holiday spending, traders on vacation, institutions squaring up their books before the holidays—or the holiday spirit—the bottom line is that bulls tend to believe in Santa," Detrick said in a post https://lplresearch.com/2020/12/23/do-you-believe-in-the-santa-claus-rally. Should the Santa rally fail to materialize, Detrick notes that in the past 20 years, stocks were lower in January each of the five times they declined during that seven-day period. (Chuck Mikolajczak) ***** JOBLESS CLAIMS, PCE, ET AL: THE ECONOMY'S ON SOMEONE'S 'NAUGHTY-ISH' LIST (1100 EST/1600 GMT) Market participants had plenty of economic indicators in their stockings on Wednesday. But while they found some candy, it was mostly coal. The number of U.S. workers filing first-time applications for unemployment benefits USJOB=ECI fell more than expected last week to 803,000, according to the Labor Department. urn:newsml:reuters.com:*:nL1N2J21RP Analysts saw the data holding steady at 885,000. While a move in the right direction, it's still a bruisingly high number and a sobering reminder that the economy is hemorrhaging jobs amid the pandemic. "With Covid cases likely to rise after the upcoming holiday, wider limitations on activity that close businesses will result in job and income loss," writes Rubeela Farooqi, chief U.S. economist at High Frequency Economics. "Given the destruction being caused to economic activity by containment measures currently, it will have little impact on dimming growth prospects in the very near term." Mounting job losses and resurgent cases of COVID-19 seem to be prompting consumers to tighten their purse strings. Data from the Commerce Department showed consumer spending USGPCS=ECI - which accounts for more than two-thirds of U.S. GDP - dropped by 0.4% last month, the first decline since the recovery began in May. Indeed, consumers had less money to spend. Personal income USGPY=ECI dropped by 1.1%, much steeper than the 0.3% decline expected by economists. "A rapidly worsening health situation, weakening income, depleted savings for lower income families and cooler weather led consumers to slam their wallets shut in November," says Gregory Daco, chief U.S. economist at Oxford Economics. "Personal income and spending fell for the first time in this recovery cycle, and real time data points to ongoing weakness in December." This brought the saving rate - seen by many as a gauge of consumer anxiety - down to a still-elevated 12.9% of disposable income. That elevated anxiety was evident in the University of Michigan's final take on consumer sentiment USUMSF=ECI for December. The index fell more than expected to a reading of 80.7, less cheery than the 81.4 previously reported. "While the rollout of the vaccine has been greeted as the beginning of the end, the end of the pandemic is still on the distant horizon in terms of a return to normalcy for consumer behavior, even among the most favored households," says Richard Curtin, chief economist at UMich's Surveys of Consumers. "Precautionary motives will continue to shape both economic and personal behavior." Not all data released on Wednesday was of the coal variety. Another report from the Commerce Department showed new orders for durable goods USDGN=ECI rose by 0.9% in November, more robust than the 0.6% consensus. But new orders for capital goods excluding defense or aircraft - seen as an indicator of business spending plans - rose at a slower pace than expected, increasing 0.4% versus the 0.6% consensus. "Aircraft orders held up better than we expected in November, supporting headline durable goods orders, and core orders were better than they appear, thanks to hefty upward revisions," says Ian Shepherdson, chief economist at Pantheon Macroeconomics. "The industrial recovery continues, though it’s probably no longer accelerating." Other data showed core PCE prices USPCE2=ECI - the U.S. Federal Reserve's preferred inflation yardstick - held steady at 1.4% year-on-year, a bit weaker than the 1.5% expected and well below the central bank's average 2% annual inflation target. Finally, sales of newly constructed U.S. homes USHNS=ECI plunged by 11.1% in November to a 841,000 unit seasonally-adjusted annualized rate, according to a very busy Commerce Department, much worse than the expected 0.3% decline analysts expected. Together with Tuesday's worse-than-expected drop in existing home sales - the first decline in six months - the data hints that housing market, thus far the star of the economic recovery from the pandemic recession, isn't immune to the loss of momentum in the broader economic recovery. (Stephen Culp) ***** "EXTREME OPTIMISM ON THE BUY-SIDE" - RBC INVESTOR SURVEY (1030 EST/1530 GMT) Lori Calvasina, Head of U.S. Equity Strategy at RBC Capital Markets, put out a note Monday detailing the results of the latest RBC US Equity Investor Survey. Calvasina says that optimism on the outlook for the stock market and economy is running high. She adds that 60% of respondents are "very bullish or bullish." Importantly, the share of those with an optimistic view is near all-time highs in the survey, which RBC has been conducting since 1Q18. Meanwhile, the "share of those with a bearish or very bearish outlook is also at a survey low, of just 9%." Calvasina also notes that "pervasive investor optimism isn’t limited to the stock market, but rather applies to the broader economic outlook as well." She says that almost three-quarters are bullish or very bullish on the U.S. economy, similar to early 2018 after the Tax Cuts & Jobs Act was passed. Additionally, she says that the survey pointed to overwhelming optimism surrounding the COVID vaccine. In fact, almost three-quarters are optimistic about vaccine distribution in the U.S., with 80% believing that a majority of the U.S. population will be vaccinated by the end of next year. On politics and policy, most (88%) still believe Republicans will retain Senate control, with 56% saying this outcome is bullish or very bullish for stocks. Although very few (only 12%) believe Democrats will win both Georgia Senate seats in the January runoff, almost half believe this would be a negative for the stock market. In terms of market leadership, Calvasina says that small caps, cyclicals, value, and emerging markets were the top picks for areas expected to outperform. (Terence Gabriel) ***** BREXIT DEAL XMAS EXCITEMENT (1011 EST/1511 GMT) There's been some market price action across asset classes in the last hour or so with multiple news reports flagging a possible post-Brexit trade deal which could land just in time for Christmas. The pan-European STOXX 600 is on a session high, rising 1% while the UK focused stocks in London's FTSE are up a handsome 1.6%, also at their highest for today. While the moves on European stock markets don't look that exuberant, we have big prices swings for the pound, up 1.3% against the dollar and yields for the UK 10 year also jumping. "There's some conviction in the market", Antoine Bouvet, Senior Rates Strategist at ING just told us, adding further market action would have to be expected should a deal be confirmed. Lee Hardman, currency analyst at MUFG Bank also commented that the "market is anticipating that a deal will be agreed in the next day or two." (Julien Ponthus, Karin Strohecker and Joice Alves) ***** S&P 500: STUDENT BODY RIGHT (0900 EST/1400 GMT) The S&P 500 .SPX is only trading down about 1% from last Thursday' record high close. urn:newsml:reuters.com:*:nL1N2J110J That said, a contrarian measure of sentiment, based on the CBOE equity put/call (P/C) ratio, continues to highlight what appears to be an overly complacent, one-sided market. Here is a chart of the 50-day moving average (DMA) of the P/C ratio and the S&P 500 index: On Tuesday, this P/C measure ended at 0.455, which is its lowest level since April 2000, or one month after the S&P 500's historic Y2K top. Indeed, with the market so skewed to calls vs puts, it can be signaling great complacency, thus setting the stage for a top of some form. A shorter-term version of the P/C measure, using a 5-day moving average, shows a reading of 0.408 today, after hitting a fresh multi-decade low of 0.376 on December 7. Of note, these measures could hit more extreme levels. Nevertheless, as stands, they can suggest it may be wise to be wary, given the size of the crowd forming on one side of the boat. Meanwhile, the SPX continues to struggle with some especially sticky trendlines. urn:newsml:reuters.com:*:nL1N2J20Y3 (Terence Gabriel) ***** FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE: urn:newsml:reuters.com:*:nL1N2J30UB <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ SPXPC12232020 https://tmsnrt.rs/2KNX0rB Jobless claims https://tmsnrt.rs/34B14lV Personal consumption https://tmsnrt.rs/3rqSIXS Durable goods https://tmsnrt.rs/38z6K0W New home sales https://tmsnrt.rs/3aDmeUo Tech earnings multiples far above historic average https://tmsnrt.rs/37Kk9o4 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Terence Gabriel is a Reuters market analyst. The views expressed are his own)