Live Markets: Jefferies, BofA suggest small caps could be poised for snapback rally

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22/12/2021 16:12

* Major U.S. indexes green; NYFANG, Nasdaq out front; chips
~flat
    * All major S&P 500 sectors advance: cons disc leads
    * Euro STOXX 600 index rises ~0.6%
    * Dollar down; bitcoin, gold, crude up
    * U.S. 10-Year Treasury yield flat at ~1.47%

    Dec 22 - Welcome to the home for real-time coverage of
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    JEFFERIES, BOFA SUGGEST SMALL CAPS COULD BE POISED FOR
SNAPBACK RALLY (1112 EST/1612 GMT)
    The omicron wave may soon give way to a snapback rally in
small and mid-cap U.S. stocks, Jefferies and Bank of America
Global Research said in separate reports Wednesday.
    Small-caps have borne the brunt of investor concerns that
rising case counts could weigh on the economy. Yet signs that
the omicron wave are leading to fewer hospitalizations will
likely bode well for the shares of smaller companies in the new
year, BofA strategists wrote.
    “We find that small vs. large-cap performance has had a
higher correlation with new hospitalizations (which have
recently ticked down) than new cases over the past year,” the
report noted.
    Attractive valuations in the benchmark Russell 2000 index
compared with large cap equities should also bolster returns in
the coming quarter, noted Jefferies. The price to earnings ratio
of the Russell 2000 has fallen to 25 from 32 at the end of
January, the report noted.
    “Small should beat large by over 6% over the next 12
months,” Jefferies said.
    “The average January rise for small in January stands at
3.7%, but when Q4 is down, they bounce back by 4.7%. When Q4 is
down, the smallest of the small gains 8.4% the next January
versus 7% in all periods,” the report said.
    Among Jefferies’ buy recommendations are Dave and Buster’s
Entertainment Inc  PLAY.O , Urban Outfitters Inc  URBN.O , and
National Vision Holdings Inc.  EYE.O .
    
    (David Randall)
    ***** 

    DEFENSIVE MUCH? (1035 EST/1535 GMT)
    Despite the S&P 500  .SPX  sitting less than 2% from its
intraday record high set on Nov. 22, stocks have been rattled by
concerns over a hawkish Fed, the Omicron variant spread and
uncertainty surrounding chances of the Build Back Better plan
passing in Washington. 
    As such, the tone has become more defensive in the final
month of the year, with sectors such as consumer staples
 .SPLRCS  and utilities  .SPLRCU  the top performers thus far in
December, while groups associated with higher growth prospects
such as consumer discretionary  .SPLRCD  and tech  .SPLRCT  have
lagged, raising the question as to whether this portends stormy
seas for the broader market. 
    In a recent note, Bespoke Investment Group looked at the
outperformance, using ETFs, between staples  XLP.P  and
discretionary  XLY.P  and found that when staples outperformed
discretionary by 10 or more percentage points on a month-to-date
basis, the S&P 500 struggled in the intermediate-term going back
to 1990. 
    Looking at the sector performance through Tuesday's close,
staples were outperforming discretionary stocks by about 9.5
percentage points: 
    
 
    Jason Goepfert at Sentiment Trader also looked at the recent
strength in staples and found that the percentage of staples
trading above their 50-day moving averages reached 90% last
week, while fewer than 25% of stocks on the Nasdaq  .IXIC 
managed to hold that level, the widest spread between the two in
at least 30 years.  
    However, unlike Bespoke's findings, Goepfert found that
comparing the two wasn't a good predictor for a market fall,
with only one instance leading to a "large and protracted
decline" since 1990.
     
    (Chuck Mikolajczak)
    *****
    
    U.S. STOCKS CREEP AROUND IN EARLY TRADE (1003 EST/1503 GMT)
    Wall Street's main indexes are roughly flat early on
Wednesday, as worries lingered over the Omicron variant of the
coronavirus and what it may mean for the global economic
recovery.  .N 
    As stands, the S&P 500 is on track for a second straight
close above its 50-day moving average (DMA), which sits below
the market, at around 4,618.
    The DJI is just shy of its closely watched intermediate-term
moving average, which is resistance around 35,600. The Nasdaq's
50-DMA is up around 15,500.
    Here is where markets stand in early trade:
    
    
    (Terence Gabriel)
    ***** 
    
    
    
    S&P 500: BULLS GET A BOOST (0900 EST/1400 GMT)
    In the wake of Tuesday's strong bounce, the S&P 500 index
 .SPX  is only down around 1.3% from its 4,712.02 November 10
record close.  urn:newsml:reuters.com:*:nL1N2T61W3
    Meanwhile, the 5-day moving average of the CBOE equity
put/call (P/C) ratio, which can be viewed as a contrarian
measure of sentiment, is suddenly cooperating with bulls
 urn:newsml:reuters.com:*:nL1N2SS0VJ:
    
    
    The measure, which had risen to readings of 58% and 58.2% on
December 6 and December 16, is now deflating to 51.8%. Of note,
since bottoming at 40.2% in mid-June 2020, the P/C measure has
ranged between high-30% and low-60% readings. 
    If this pattern is continuing then the measure appears to
have signaled that market sentiment became sufficiently bearish
over the last several weeks or so of trading, that the SPX can
mount a more sustained recovery.
    Therefore, traders will be watching to see if the P/C
measure can oscillate back below 40% as the SPX rallies.
    A P/C measure breakout much above the low-60% area, however,
may instead signal the onset of panic. The measure peaked at
105% on March 17, 2020, in what was a more-than-30% S&P 500
collapse.  urn:newsml:reuters.com:*:nL1N2T60ON
    
    (Terence Gabriel)
    *****

    FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400
GMT - CLICK HERE:  urn:newsml:reuters.com:*:nL8N2T72PV

    
    
    
    
    
    

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
PC12222021    https://tmsnrt.rs/3snstol
earlytrade12222021    https://tmsnrt.rs/3EiUEao
Staples thump discretionary in December    https://tmsnrt.rs/3qftkVy
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)