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Good morning contrarians! Welcome to December. This is traditionally a pretty good month for stocks. Only once has it been the worst month of the year, in 2018. It’s been second-worst a few times (that information courtesy of Ryan Detrick’s twitter).
Indeed stock futures are bright green as of 0645. Tech and small caps are leading the way. The Russell 2000 is up 2% and Nasdaq up 1.5%. S&P 500 futures are pointing to a gain of 1.2% while Dow Industrials are 0.8% to the good. Industrial commodities are rebounding, led by oil. WTI crude is up over 4% to trade around $69/barrel. Bonds are selling off, with the yield on the 2-year back up to 0.6%. It was down around 0.45% yesterday.
This follows a day when risk assets sold off across the board. There were renewed Omicron fears in the morning. Then Jerome Powell came in and spooked markets by saying the Fed was likely to speed up its tapering. The good news here is Powell apparently doesn’t view Omicron as enough of a threat to upend his tapering schedule. The bad news is he’s determined to show he’s serious about fighting inflation.
Speaking of Omicron, that is still front and center of investors’ minds and any developments could still spook markets. We still haven’t seen a case in the U.S. for example. So, to repeat what was said on Monday morning when futures were pointing higher: we are probably not yet out of the woods quite yet.
And speaking of the Fed, we get more testimony from Powell today. Maybe he’ll walk back his comments from yesterday, who knows? The Fed also releases its ‘Beige Book’ at 1400. This is a report on economic conditions from each of the Fed’s 12 districts. There are only eight of these reports a year and this is the final one. It’s worth watching for concerns about inflation and supply chain issues as well as how demand is holding up more generally.
We also have ADP non farm payrolls out at 0845 and ISM Manufacturing PMI at 1000. The ADP figure is not that closely watched but is expected to show an increase of 525,000 jobs in November. The PMI is expected to come in at 61, around the same as the previous month and well ahead of the 50 line that separates expansion from contraction.
Bottom Line
Futures are pointing in a clear direction again, this time upward. There are still some cards that Omicron could play to spook markets again, however. Like confirmed cases in the U.S…
Yesterday’s Bottom Line told you that nobody knows exactly what is going to happen with Omicron but that markets might be pricing in a worst-case scenario. Things went from bad to worse after Powell’s comments.
Welcome to December