Live Markets: Stunning 2021 IPO market a tough act to follow
16/12/2021 18:36
* S&P 500 falls, Nasdaq slides ~2%, Dow rises; banks
outperform
* Tech weakest major S&P 500 sector; energy leads gainers
* Dollar, bitcoin fall; gold, crude rise
* U.S. 10-Year Treasury yield falls to ~1.43%
Dec 16 - 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
STUNNING 2021 IPO MARKET A TOUGH ACT TO FOLLOW (1330
EST/1830 GMT)
This year's IPO market was one for the history books,
Renaissance Capital says in their annual review.
A "stunning" 399 IPOs (including direct listings with a
market cap of at least $50 million) raised $143 billion in the
busiest year by deal count since 2000 and biggest year for
proceeds ever, Renaissance writes.
Deal flow was essentially nonstop this year, Renaissance
points out, with typical strength in healthcare and technology
joined by a pickup in consumer names.
However, although IPOs had strong average first-day gains
(+31%), Renaissance says, these were "obliterated" in the
aftermarket as high valuations ran into rising fears of
inflation and COVID-19 variants, resulting in an average IPO
return of -10%.
Similarly, the Renaissance IPO Index started off strong but
lost steam, is negative year-to-date, and significantly
underperforming broader markets:
Looking ahead to 2022, Renaissance believes the IPO market
will fail to match this past year's pace, but an ample number of
candidates are ready to pounce when conditions improve.
Renaissance points to notable upcoming new listings from the
likes of Hong-Kong-based life insurer FWD Group Holdings
FWD.N , Greek yogurt brand Chobani, as well as social media
platform Reddit, which confidentially filed on Wednesday for a
potential IPO urn:newsml:reuters.com:*:nL4N2T10TS.
Meanwhile, heightened activity was not limited to
traditional IPOs: Blank check firms posted another
record-breaking year as 604 SPACs (special-purpose acquisition
companies) raised $144 billion, Renaissance calculates, blowing
away 2020's 248 offerings that raised roughly $80 billion.
SPAC mania peaked in the first quarter, which produced about
62% of the entire year's proceeds, Renaissance says, though
broad-based returns suffered amid increased regulatory scrutiny.
SPACs continued to serve as a popular alternate route to
public markets. Though high investor withdrawals recently before
a merger was completed has sent shares of many SPACs, such as
media firm BuzzFeed BZFD.O and Zoom Video ZM.O -backed Cvent
CVT.O , sliding urn:newsml:reuters.com:*:nL1N2SU1ZX urn:newsml:reuters.com:*:nL1N2SU1I1.
(Lance Tupper, Chuck Mikolajczak)
*****
AS-EXPECTED FED SETS STAGE FOR YEAR-END RALLY (1210 EST/1710
GMT)
Nicholas Colas, Co-founder of DataTrek Research, is offering
a number of observations regarding Wednesday's FOMC Meeting
results and Chair Powell's press conference. As Colas sees it,
markets breathed a collective sigh of relief that it came out as
expected.
According to Colas, Fed Funds Futures are suggesting the
first rate hike is most likely 3 to 5 months away, and he
believes that "is perfectly OK for stocks." This because he says
that the first hikes are not historically "rally killers unless
there is a 50 basis point move in the mix, and he sees little
chance of that happening in 2022.
Colas adds that the Fed’s December dot plot of the FOMC’s
expected path of 2022 rate policy was exactly what Fed Funds
Futures expected. Thus, there was no surprise there.
Colas does say there is some concern in the market about a
10-year Treasury yield around 1.46% in terms of what its says
about economic growth/Fed policy and the Fed’s ability to raise
rates above 1.5%. That said, Colas does think equity markets
would be more comfortable if yields were closer to 2.0% over the
next year.
He also adds that even with a faster taper and three rate
hikes next year, the Fed still needs supply chains to open up
and consumer spending to normalize back to incremental outlays
on services rather than physical goods.
Colas does say there were two very bullish messages that
came out of Powell's presser. One is that the Fed does not see
the latest pandemic variant as a threat to the U.S. economy.
Secondly, Powell sees the current economic setup as much better
than in 2018-2019.
Colas' takeaway is that "while the Fed has no better crystal
ball than markets do, these messages were certainly reassuring.
With those in their back pocket, we expect equity markets to
rally through year end."
(Terence Gabriel)
*****
MARCH OF THE DATA SOLDIERS: A PARADE BACK TO ECONOMIC
NORMALTOWN (1115 EST/1615 GMT)
A platoon of indicators treated investors to a data parade
on Thursday, the sum of which indicated that despite ongoing
supply constraints, a tight labor market and persistent
inflation, the economy is marching back to 'normal.'
The number of U.S. workers filing first-time applications
for unemployment benefits USJOB=ECI edged up last week to
206,000, a 9.6% increase from the previous week's
upwardly-revised 188,000. urn:newsml:reuters.com:*:nL1N2T01T1
Analysts expected the Labor Department to deliver an even
200,000.
Despite the increase, initial jobless claims remain at the
lower edge of the range typically associated with healthy labor
market churn, and provides further evidence of a tightening
labor market.
With quit rates at record highs and business surveys nearly
unanimously lamenting the ongoing worker shortage, employers
appear disinclined to hand out pink slips.
"While seasonal factors have made the data volatile in
recent weeks, the trend in jobless claims points to historically
low layoff activity and is consistent with a tight labor
market," writes Lydia Boussour, lead U.S. economist at Oxford
Economics.
Ongoing claims USJOBN=ECI , reported on a one-week lag,
notched a steeper than anticipated decline, coming in at 1.845
million.
Groundbreaking on new U.S. homes USHST=ECI jumped 11.8%
last month to 1.679 million units at a seasonally adjusted
annualized rate (SAAR), the highest level since March according
to the Commerce Department, notching a 7.1% surprise to the
upside. urn:newsml:reuters.com:*:nL1N2T03FZ
Having hit a 14-and-a-half year high last March, builders
have since contended with scarcity of lots, labor and materials,
despite consistently robust demand supporting new construction.
Building permits USBPE=ECI , among the most forward-looking
of housing market indicators, also beat expectations, rising
3.6% to 1.712 million units SAAR.
The balance of the economic data released this morning
provided separate takes on U.S. business activity, all of which
marched in lockstep to suggest continued expansion, but at a
slightly slower pace.
The key takeaway: demand remains strong, and the supply
chain is showing signs of untangling.
Output from American goods-makers USIP=ECI increased by
0.5% in November, marking a substantial deceleration from the
previous month's 1.7% increase and falling short of the 0.7%
projection.
But the report from the Federal Reserve also showed capacity
utilization USCAPU=ECI , cranked up 0.3 percentage points to
76.8%, hitting the consensus nail on the head.
Capacity use, a measure of economic slack, has now reclaimed
its pre-pandemic 'normal.'
"Overall, manufacturing has fully recovered pandemic-related
losses on a rebound in non-auto production. Manufacturing
activity is still supported by demand for goods and low
inventories," says Rubeela Farooqi, chief U.S. economist at High
Frequency Economics. "But restrictions arising from rising
infections that further aggravate supply chains and shortages
are a downside risk."
The deceleration of industrial production last month was
echoed by the December reading of The Philadelphia Federal
Reserve's Business index, which showed factory activity in the
mid-Atlantic region took its foot off the accelerator this
month.
The Philly Fed USPFDB=ECI delivered a reading of 15.4,
falling a mile short of the expected 30 and marking a departure
from Tuesday's Empire State report, which showed an accelerated
expansion in New York factory activity this month.
A Philly Fed/Empire State number over zero signifies
month-over-month expansion.
"Looking ahead, manufacturers in the Philly Fed region look
poised to maintain positive attitudes in 2022 as solid demand
and a heavy backlog of orders keep them working in a high gear,"
says Oren Klachkin, lead U.S. economist at OE. "However stubborn
supply-chain blockages will limit their ability to keep up with
demand."
Global financial information firm HIS Markit also had its
say regarding U.S. business activity.
Markit's advance "flash" purchasing managers' index (PMI)
showed a slight, though unexpected slowdown in both the
manufacturing USMPMP=ECI and services USMPSP=ECI sectors.
"Business growth slipped only slightly during the month and
held up especially well in the vulnerable service sector,"
writes Chris Williamson, chief business economist at IHS Markit.
"Barring the initial price slide seen at the start of the
pandemic, December saw the steepest fall in factory input price
inflation for nearly a decade," Williamson adds, while noting "a
marked easing in the number of supply chain delays."
The respective 57.8 and 57.5 PMI readings for manufacturing
and services marked modest drops from the previous month.
A PMI number over 50 indicates expanded activity versus the
prior month.
The over-riding 'return to economic normalcy' theme, falling
neatly behind Wednesday's hawkish shift from the Fed, appeared
to be benefiting economically sensitive stocks.
Wall Street's major indexes are mixed, with tech .SPLRCT
pulling the Nasdaq .IXIC into the red, while financials
.SPSY and industrials .SPLRCI are boosting the DJI .DJI
into positive territory.
(Stephen Culp)
*****
WITH A TILT TOWARD VALUE, MAJOR U.S. INDEXES MIXED (1008
EST/1408 GMT)
Wall Street's main indexes are mixed in early trade Thursday
after the Federal Reserve announced a faster wind-down of its
pandemic-era stimulus, calming nerves around surging price
pressures. .N
Of note, there is a clear tilt in favor of more economically
sensitive value-oriented .IVX S&P 500 .SPX sectors versus
growth .IGX . The IVX/IGX ratio has risen to its highest level
since mid-November.
With this, energy .SPNY , banks .SPXBK , and transports
.DJT are among outperformers.
FANGs .NYFANG , chips .SOX , and tech .SPLRCT are red.
Meanwhile, the U.S. 10-Year Treasury yield US10YT=RR is
falling to the 1.42% area. That said, the 2s-10s yield spread is
steady around 79 basis points.
Here is where markets stand in early trade:
(Terence Gabriel)
*****
SMALL CAPS: READY TO DEMAND SOME ATTENTION AGAIN? (0900
EST/1400 GMT)
Small caps have certainly been out-of-favor of late. From
its November 8 record intraday high to Wednesday's intraday low
the Russell 2000 index .RUT collapsed more than 13%.
urn:newsml:reuters.com:*:nL1N2S10XE urn:newsml:reuters.com:*:nL1N2SZ0W9
It's been a rough go for small caps vs large caps for most
of 2021. For example, despite the RUT's record highs in
November, the RUT/Dow Industrials .DJI ratio actually peaked
in early-February as it approached its 2014 high:
The RUT now finds itself trading below both its 50 and
200-day moving averages (DMA), and on Tuesday it hit its lowest
level relative to the DJI since November 2020.
That said, despite an October scare which saw the 50-DMA
skirt the 200-DMA by just decimals, this closely-watched
intermediate-term moving average has been above the longer-term
moving average since August 2020. There are around 34 points
separating them at this time.
Additionally, despite the fresh low relative to the DJI, it
was just marginal, and with Wednesday's rally, the ratio ticked
up.
Thus, just ahead of the time when market participants may
look for a "January effect", when small caps tend to outperform
large caps, the RUT appears to be at an important juncture.
urn:newsml:reuters.com:*:nL1N2T00T5
If it can hold its summer 2021 lows in the 2,122/2,107 area,
(Wednesday's low was at 2,130.9063), and reclaim its 50-DMA, now
around 2,293, there could be room again to challenge its
November high, at 2,459, and even the resistance parallel, which
now resides just over 2,500.
Conversely, continued RUT weakness which takes out its
summer lows, leads to a dead-cross (50-DMA crosses below
200-DMA), and sees the RUT/DJI ratio break even lower can
suggest potential for a much greater collapse. This, especially,
given that the RUT's rising 200-week moving average, which could
be a strong magnet, is now around 1,725. urn:newsml:reuters.com:*:nL2N2ND0TO
(Terence Gabriel)
*****
FOR THURSDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400
GMT - CLICK HERE: urn:newsml:reuters.com:*:nL8N2T14N0
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
RUT12162021 https://tmsnrt.rs/3maPbvY
earlytrade12162021 https://tmsnrt.rs/3m97UIe
Jobless claims https://tmsnrt.rs/3F1rDkw
Housing starts https://tmsnrt.rs/3dUT3wA
Industrial output https://tmsnrt.rs/33u0N6J
Philly Fed https://tmsnrt.rs/3dXbEs4
Markit Flash PMI https://tmsnrt.rs/3sd6foW
IPO performance vs S&P 500 https://tmsnrt.rs/3E5vg7I
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Terence Gabriel and Lance Tupper are Reuters market analysts.
The views expressed are their own)