LIVE MARKETS New Year’s resolutions could include small caps and real estate

  • DJI soars, S&P 500 ~ flat, Nasdaq drops; weak chips
  • Utilities lead the winners in the S&P sector; weakest technological group
  • Dollar, rise in crude; gold ~ flat; Bitcoin down> 5%
  • 10-year US Treasury yield plunges to ~ 1.48%

December 28 – Welcome home for real-time market coverage presented by Reuters reporters. You can share your thoughts with us at [email protected]

NEW YEAR’S RESOLUTIONS MAY INCLUDE SMALL CAPITALIZATIONS AND REAL ESTATE (1331 EST / 1831 GMT)

As 2021 draws to a close, Jason Pride, Chief Investment Officer of Private Wealth at Glenmede, has some views on how investors should be positioned by 2022. He believes they should maintain a “position of modestly overweighted risk, with a selective focus on small caps and global real estate. “

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According to Pride, following another strong year, stocks don’t look particularly cheap going into 2022. In fact, he says that using Glenmede’s Global Expected Returns model, a portfolio of Equity Balanced, based on geographic exposure and market capitalization, currently sits at the 81st percentile of long-term valuations.

He notes that the growth of US large caps appears “particularly extensive” at the 98th percentile, while the value of large and small caps appear “more favorable” in comparison at the 81st and 73rd percentiles. “

With that, Pride argues that as the new year approaches, investors should consider tilting equity allocations in favor of small caps. On the one hand, he says small caps have an all-time high for robust returns in the years after recessions officially ended. Further, he says small caps have outperformed CPI inflation in every decade since the 1930s, likely reflecting their ability to be “more nimble in the face of changing price pressures.”

When it comes to risky asset classes, Pride says few look more attractive than real estate. He believes the group should benefit from a number of macroeconomic ripples, including the economic recovery and higher occupancy rates. Additionally, he says REITs have historically been among the best performing assets during times of above-normal inflation, making them a “compelling solution for diversified portfolios.”

(Terence Gabriel)

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HOME FIRE KEEPING: HOME PRICE GROWTH REMAINS HISTORICALLY HOT (1102 EST / 1602 GMT)

With millionaires and telescopes launched into space in recent days, one wonders if they’ve met house prices in the United States, which still benefit from its historically high orbit.

Home prices in the United States rose at a staggering 19.1% annual rate in October, a deceleration of 0.6 percentage points from the previous month.

The 20-city Core Logic / Case-Shiller composite (USSHPQ = ECI) delivered a year-over-year impression of 18.4%, just a hair below consensus and marking a slowdown of 0.7 ppt per year. compared to the previous month.

Despite the cooler reading, Craig Lazzara, Managing Director of S&P DJI, helpfully points out that this was still the fourth highest reading in the index’s 34-year history.

Regarding the constituents of the 20-city composite, Lazzara says that “October’s increase ranked in the top quintile of historical experience for 19 cities and in the top decile for 17 of them.” .

The persistent growth in house prices is the result of a continued surge in demand amid a COVID-induced scramble for the suburbs, which has driven the supply of homes in the market to record highs.

“Inventories remain scarce, but erosion of affordability has excluded some buyers from the market,” writes Nancy Vanden Houten, chief economist at Oxford Economics. “As a result, the prices seem to be adjusting.”

So what’s in the charts for house prices in the coming year?

“More data will be needed to understand whether this increase in demand represents an acceleration in purchasing that would have occurred over the next few years, or reflects a more permanent secular change,” adds Lazzara.

Phoenix again led the pack, with home prices surging 32.3% from a year ago, with Tampa and Miami posting the second and third hottest increases at 28.1% and 25.7%, respectively.

The graph below compares the annual growth of the 20-city composite with the “traffic from potential buyers” component of the National Association of Home Builders Sentiment Index:

Shiller case

Speaking of builders, they continue to struggle with a shortage of materials and available lots as they scramble to keep pace with the demand tsunami, most recently witnessed by the 12.4% rebound in sales of new housing, as reported by the Commerce Department last Thursday.

So, while the industry has had to grapple with the weight of its own success as many potential buyers are shut out of the market, home inventories – the most forward-looking indicator of all – are booming.

Over the past 12 months, the Philadelphia SE Housing Index (.HGX) and, more strikingly, the S&P 1500 Home Building Index (.SPCOMHOME) have significantly outperformed the overall market.

Based on a year ago, the HGX and SPCOMHOME posted gains of 31.3% and 42.4%, compared to the S&P 500’s still impressive 28.3% rise during the same period, as seen below:

Housing parks

Wall Street appears to be following the lead of the data, with the S&P 500 (.SPX) and Dow Industrials (.DJI) continuing their ascent on Tuesday.

The tech-weighed (.SPLRCT) Nasdaq (.IXIC) is just below the flat line.

(Stephen Culp)

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INDUSTRIAL AVERAGE DOW FLIRTS WITH HIGHEST RECORD (1002 EST / 1502 GMT)

The S&P 500 (.SPX) is trading at an all-time high on Tuesday, building on a four-day rally amid low trading volumes, investors unmoved by travel disruptions and store closings caused by Omicron.

Meanwhile, with its early gain, the Dow Jones Industrial Average (.DJI) is on track to finish above its all-time high of 36,432.22 on November 8. DJI’s intraday high, also on November 8, stands at 36,565.73.

The Nasdaq Composite (.IXIC) is around 1% off its record November 19 close of 16,057.437. His intraday high was on November 22 at 16,212,229.

It should be noted that at 7.9 billion shares, the total volume on the US stock exchanges on Monday was the lowest of the year.

Here’s your early trading snapshot:

earlytrade12282021

(Terence Gabriel)

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S&P 500: ECHOES FROM 1929 AND 2000? (9:00 am EST / 1400 GMT)

The S&P 500 (.SPX) is set to rise nearly 28% in 2021. With that, its three-year rolling gain now stands at 91%. This is the best such increase since a 98% gain in 1999, which was, of course, just before the tech bubble burst in March 2000.

As 2021 draws to a close, the SPX is approaching a 92-year log-scale resistance line, which could be a formidable barrier given it is based on peaks in the index of 1929 and 2000.

SPX12282021A

On a monthly basis, that line is now around 5,150, or around 7% above current levels. Since it is increasing by about 25 points per month, it will be around 5,225 in March 2022, or about 9% above current levels. Read more

In addition, the monthly dynamic is lagging behind. Since peaking at an all-time high in January 2018, RSI has failed to confirm SPX’s new records:

SPX12282021B

In fact, the current 47-month divergence is only slightly longer than the 45-month period from what was then the highest monthly RSI level in June 1996 to the peak of the S&P 500 in March 2000.

So, given the extent of the S&P 500’s three-year advance, resistance line and momentum divergence, the start of 2022 could prove to be a critical test for the benchmark.

(Terence Gabriel)

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Terence Gabriel is a market analyst at Reuters. The opinions expressed are his

Our Standards: Thomson Reuters Trust Principles.

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