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LIVE MARKETS Wall Street drops; Ukraine worries rise

  • Main U.S. indexes finish in the red; Nasdaq down nearly 3%
  • Washington warned Russia invasion of Ukraine could come any time
  • Tech weakest major S&P 500 sector; energy biggest gainer
  • Dollar, gold, crude gain; bitcoin down
  • U.S. 10-Year Treasury yield tumbles to ~1.92%

Feb 11 – 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

WALL STREET DROPS; UKRAINE WORRIES RISE (1605 EST/2105 GMT)

U.S. stocks ended sharply lower on Friday, with elevated worries about tensions between Russia and Ukraine adding to pressure in afternoon trading.

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The Nasdaq (.IXIC) fell more than 2%, leading losses among major indexes. The S&P 500 (.SPX) and Dow (.DJI) dropped more than 1% each, and the S&P 500 technology (.SPLRCT) sector weighed the most on the benchmark index.

Selling picked up in afternoon trading as Washington warned that Russia was massing more troops near Ukraine and that an invasion could come at any time.

Among sectors, just energy (.SPNY) – which rose along with oil prices – and utilities (.SPLRCU) finished the day in positive territory.

All three major U.S. stock indexes also registered losses for the week.

Here is the closing market snapshot:

feb 11

(Caroline Valetkevitch)

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PROFIT SEASON IN HOMESTRETCH, LOOKING BRIGHTER (1345 EST/1845 GMT)

With results now in from about 80% of the S&P 500 (.SPX) companies, the fourth-quarter earnings season is in the homestretch and looking brighter than it did at the start of the reporting period.

Despite some notable misses at the start of the period from heavyweights like Netflix Inc , the margin by which companies have been beating analysts’ estimates has improved considerably in recent weeks.

In aggregate, S&P 500 companies are reporting earnings 5.3% above expectations, compared with a long-term average of 4.1% above estimates and average of 16.0% for the prior four quarters, Thomas Alonso, senior research analyst at Refinitiv, wrote in his report Friday.

Just two weeks ago, companies in aggregate were reporting earnings just 3.2% above expectations, per Refinitiv data.

Year-over-year fourth-quarter earnings growth is now estimated at 31%, up from the 22.3% growth forecast at the start of the reporting period, according to Refinitiv.

(Caroline Valetkevitch)

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INDIVIDUAL INVESTORS WEIGH RATE-HIKE RISKS (1315 EST/1815 GMT)

As part of the most recent American Association of Individual Investors (AAII) Sentiment Survey read more , AAII asked its members to share their thoughts about how the prospect of multiple interest rate hikes in 2022 is impacting their portfolio allocation decisions.

AAII reported that nearly two out of five respondents (38%) said that the proposed rate hikes have no impact on their portfolio allocation decisions, as “many are already expecting them.”

Against this, 25% of respondents said that their stock allocation would be effected. Some of these respondents said they are favoring growth stocks, while others said they are moving to value stocks.

About 13% of respondents stated that their bond allocation would be impacted, with many “pivoting away from the fixed-income securities.”

Meanwhile, around 9% of respondents remain uncertain as to how the rate hikes would impact their portfolios. Roughly 5% of respondents believe that the proposed rate hikes would have a positive impact and 5% foresee a negative impact.

Here are a couple of quotes from investors on the matter:

“It depends on the magnitude of the hike. A small hike, 0.25% per hike (three or four for the year), will not have an impact. Larger hikes may have a dampening effect.”

“The closer we get to actual market rates the better off the country will be. As long as the Federal Reserve doesn’t lose its head and go off the deep end, a gradual increase in rates should help stem inflation in the long run. Short-run pain for long-run gain.”

(Terence Gabriel)

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REGIONAL INFLATION WEATHER: MIDWEST, SOUTH FEEL THE MOST HEAT (1245 EST/1745 GMT)

With inflation having rocketed to a four-decade high last month, the price heatwave isn’t affecting every American equally.

Oxford Economics (OE) has published a note on how current price surges are being more strongly felt in the midwest and the south than they are in the northeast or the west.

And the differential appears to apply to a broad range of items, according to Oren Klachkin, lead economist at OE.

“Energy and food inflation are most pronounced in the Midwest and South,” Klachkin writes. “But core inflation in the regions have also mildly outpaced the West and Northeast, mainly because goods prices have risen more rapidly.”

OE’s economists calculate that core goods prices in the two regions are responsible for about 60% of the national increase since 2020.

And COVID’s impact on housing affordability has been disproportionate as well, with owner’s equivalent rent rising 6% since the onset of the health crisis, according to the note.

One of the reasons for the regional imbalance is the pace of economic recovery. Demand has rebounded more quickly in the south and the midwest compared with the northeast and the west.

The labor market is tighter in the south and midwest than the nation as a whole. In fact, Klachkin says, the unemployment rate is several states in these regions reaching record lows.

This state of affairs is adding further salt to the wound; the higher wages employers are dangling in front of potential employees are also being passed along to the consumer, notes OE.

Additionally, more robust demand in the midwest and the south is the driver of consumer spending growth above the national rate, further exacerbating supply scarcity, the note says.

The graphics below, courtesy of OE, show regional differences in retail sales and supply slack:

OE retail sales
OE supply slack

(Stephen Culp)

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MATERIALS OUT FRONT THIS WEEK (1215 EST/1715 GMT)

While it’s trading down on the day, the S&P 500 materials sector (.SPLRCM) remains on track to finish up about 2.5% for the week, the most of any of the major sectors.

That would also be its biggest weekly percentage gain since the week ended of Dec. 31, and it would buck the trend in the broader index, with the S&P 500 (.SPX) on track to register slight losses for the week.

Aluminum prices rose to 13-1/2 year highs earlier this week as a supply shortfall caused by smelter closures in Europe and China ate further into exchange stockpiles. Most base metals are set to gain for the week. read more

BofA Securities strategists in a note Friday wrote that although energy is their top pick among value stocks, they see select segments within materials as opportunities, as well as within health care and semis.

(Caroline Valetkevitch)

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MORE UNCERTAINTY ON EUROPEAN EQUITIES (1141 EST/1641 GMT)

European equities ended the week higher, despite falling since Thursday on U.S. inflation data, after closing five weeks in a row in negative territory.

The Stoxx 600 (.STOXX) was up 1.6%, its biggest weekly rise since December 2021.

Stocks seemed ready for a rebound earlier this week, but after U.S. numbers boosted expectations of further monetary tightening, strategists have little choice but to take a hard look at their equity risk premium (ERP) models.

Their views are still mixed. Credit Suisse flagged that it’s not the time to sell as the actual ERP is slightly above its fair value, and the Federal Reserve doesn’t need to shock the markets near term.

Morgan Stanley said before Thursday’s data it saw an implied 9% upside for European equities.

BofA said, “a continued widening in credit spreads would support our non-consensus bearish view,” after mentioning U.S. high-yield credit spreads being up around 50 bps from their recovery low and the Italian 10-year asset swap above 100bps for the first time since late 2020.

By the way, Europe’s volatility gauge (.V2TX) was back above its 50- and 100-day moving averages after being temporarily below those levels on Wednesday and Thursday.

The chart below shows recent week’s moves of the Stoxx 600 index (.STOXX):

stoxx

(Stefano Rebaudo)

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UMICH: CONSUMER ATTITUDES HEAD SOUTH FOR THE WINTER (1135 EST/1635 GMT)

Investors headed into the weekend with lachrymose data from the University of Michigan, which showed the mood of the U.S. consumer, who is responsible for about 70% of U.S. economic growth, is the sourest it’s been in more than a decade.

UMich’s preliminary take on February Consumer Sentiment (USUMSP=ECI) showed the index unexpectedly plunged 5.5 points to 61.7, the lowest print since 2011. read more

Analysts predicted a nominal 0.3-point gain to 67.5.

Inflation remains the villain, driving an unexpected deterioration in consumer assessment of current conditions, and a sizeable drop in near-term expectations.

“The recent declines have been driven by weakening personal financial prospects, largely due to rising inflation, less confidence in the government’s economic policies, and the least favorable long term economic outlook in a decade,” writes Richard Curtin, chief economist at UMich’s Surveys of Consumers.

Interestingly, Curtin noted that the “entire February decline was among households with incomes of $100,000 or more,” with about half of the survey’s respondents saying higher prices will lead to declines personal finances in the year ahead.

UMich

On Thursday, the Labor Department’s CPI report showed U.S. inflation in January was the hottest it’s been in four decades, pressuring consumer buying power and raising the specter of a tighter, more aggressive interest rate hike timeline from the Federal Reserve. read more

The current price tsunami has not shown many signs of cresting, a predicament reflected in the UMich report. While inflation expectations over the next five years held steady at 3.1% – notably 1.1 percentage points above Powell & Co’s average annual 2% target – one-year inflation expectations grew to 5%.

UMich inflation expectations

Wall Street is struggling for direction in morning trading, with rising oil prices putting energy stocks (.SPSY) in the lead among the major S&P 500 (.SPX) sectors, while the prospect for rate hikes is weighing on tech (.SPLRCT).

The S&P 500 and the Nasdaq (.IXIC) are last on track to be roughly flat for the week, with the Dow (.DJI) setting its sights on a moderate weekly gain.

(Stephen Culp)

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MORE INDIVIDUAL INVESTORS SEE A FLAT MARKET (1025 EST/1525 GMT)

The percentage of individual investors with a “neutral” outlook on the U.S. stock market jumped to its highest level in more than two years in the latest American Association of Individual Investors Sentiment Survey (AAII). With this, both bullish and bearish sentiment declined.

AAII reported that neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, surged by 10.3 percentage points to 40.2%. Neutral sentiment was last higher on Jan. 1, 2020 (40.9%). Neutral sentiment is also above its historical average of 31.5% for the eighth time in 10 weeks.

Bullish sentiment, or expectations that stock prices will rise over the next six months, fell 2.1 percentage points to 24.4%, staying well below the historical average of 38.0%. Bullish sentiment levels are unusually low for the fifth consecutive week and below the historical average for the 12th consecutive week.

Bearish sentiment, or expectations that stock prices will fall over the next six months, tumbled by 8.2 percentage points to 35.5%. This is the 12th consecutive week with pessimism above its historical average of 30.5%. However, it is also the third consecutive week that bearish sentiment has incurred a weekly decline of 5 percentage points or more.

AAII noted that when bullish sentiment is at an unusually low level, historically, the S&P 500 index “has gone on to realize above-average and above-median returns during the six- and 12-month periods following an unusually low reading for bullish sentiment.”

Additionally, AAII said that unusually high levels of neutral sentiment have “previously been followed by slightly below-average and below-median six-month returns, but above-average and above-median 12-month returns for the S&P 500.”

With these changes, the bull-bear spread rose to -11.1 from -17.2 last week read more :

AAII02112022

(Terence Gabriel)

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S&P 500 EDGES UP IN CHOPPY TRADE; ENERGY IN FRONT (0955 EST/1455 GMT)

The S&P 500 (.SPX) is up slightly in early trading on Friday, but trade is choppy as worries about inflation and interest rates remain.

Energy shares are up following gains in oil prices, and the energy sector (.SPNY) led percentage gains among S&P sectors, followed by utilities (.SPLRCU).

Here is the early market snapshot:

for Feb 11

(Caroline Valetkevitch)

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S&P 500: LOOKING FOR A BREAKOUT (0900 EST/1400 GMT)

Over the past several weeks, the S&P 500 index (.SPX) has been struggling to sustain a breakout of the range defined by several long-term moving averages.

Traders will be watching for two-straight closes outside this zone to suggest the range may finally be giving way read more :

SPX02112022

Indeed, since Jan. 31, the SPX has primarily chopped in a range defined by its 100 and 200-day moving averages (DMA).

On Feb. 2 and again on Feb. 9, the SPX ended just slightly above the 100-DMA. However, the next trading day, it immediately tumbled back below this moving average, which ended Thursday just shy of 4,575.

Since reclaiming its 200-DMA on Jan. 31, the SPX has used this moving average as support. On Feb. 4, the SPX fell to around 4,451, which was just slightly above the 200-DMA. The SPX then snapped higher.

The 200-DMA ended Thursday at around 4,451.

Thus, traders may be watching for two-straight daily closes outside the range defined by these moving averages to add confidence in the next short-term trend.

Meanwhile, daily momentum remains stunted. Even on the days the SPX ended above the 100-DMA, the RSI was unable to muster enough strength to reclaim the 70.00 overbought threshold. Doing so, may signal the SPX has sufficient thrust to sustain a push to new highs.

On a downside range resolution, which leads to a test, or break of the Jan. 26 close at 4,326.51, traders will look for the RSI to establish a higher low vs its late-January trough. This sort of convergence pattern may suggest potential for another bottom of some form.

In any event, S&P 500 futures are exhibiting a similar pattern as the SPX. After dipping toward their 200-DMA in overnight trade, they have since recovered, and are now slightly green on the day. read more

(Terence Gabriel)

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Terence Gabriel is a Reuters market analyst. The views expressed are his own

Our Standards: The Thomson Reuters Trust Principles.

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