After the S&P 500's politics and the omicron-driven worst session since December 1, stock futures are pointing to a bounce.
But don't get too comfy, warned Oanda senior market analyst Jeffery Halley, who noted that investors didn't flock to traditional safe haven plays — the Canadian, Australian and New Zealand dollars on Monday.
That is a good warning to the fast-money FOMO fear of missing out gnomes, that sentiment remains extremely fragile, complicated by rapidly thinning liquidity in asset classes ahead of the holiday season and year-end, he said.
Monday was an ugly day for the stock market headed for Christmas. Here is what history says about returns on the following Tuesday.
A team of Morgan Stanley strategists said that the omicron variant has awoken investors to a slowdown that will linger into mid 2022, which is why we call it beyond 2021. They said no more defensive stocks are needed to face down that.
Their call focused on a fire-and-ice narrative that Mike Wilson, chief U.S. equity strategist, and his team have been talking about for a while.
The Fed realized that inflation won't be transitory and plans to curb support is what is playing out of central bank tightening, which is playing out with central bank tightening. Expectations for the so-called fire have been hitting growth stocks hard over the past few months, probably discounted since February, said Wilson and the team.
The ice part of that argument is a growth slowdown, and what investors are left to contend with as they try to determine growth repercussions from a cyclical downturn that started in April.
Leading indicators point to PMI purchasing managers index deceleration in the coming months, which is a major concern for cyclicals relative performance. Wilson said that earnings expectations for discretionary versus staples are decelerating, and consumer sentiment around buying conditions for large purchases has plummeted, which has led to a decline in discretionary relative performance.
Our concern that the ice will turn out to be chillier than most people expect is increasing. Wilson and the team believe that omicron is a part of that concern in the near term for certain activities, but we are more focused on supply picking up just as consumption is fading from a payback in demand, higher prices and demand destruction.
They have been sticking with defensives, which they note have been the best performers since a risk-off move by markets in mid-November when growth stocks took a turn lower. The sector has overtaken secular growth, growth software and crowded stocks from a year-to-date standpoint.
Here is a chart showing how PMI deceleration will hit cyclicals harder than defensives. They say healthcare and real-estate investment trusts have been top performers in that defensive realm, and continue to favor both.
Morgan Stanley's S&P 500 forecast is among the most bearish on Wall Street, with a 2022 end year target of 4,400.
President Joe Biden is going to present a plan to help communities battle COVID 19, with the latest omicron wave accounting for 73% of all new U.S. infections last week, according to data Monday. Biden tested negative for the disease on Monday after close contact with an ill staffer, and will test Wednesday.
There are nearly halved infections in South Africa from the omicron peaks, but deaths and hospitalizations are reportedly higher. Some people are asking for some to cancel holiday gatherings, according to the World Health Organization.
Despite slumping Chinese sales, Nike NKE is on the rise after the athletic-wear maker's earnings beat forecasts. Micron MU is up after a solid beat and forecast from the chip maker.
Nikola shares NKLA are up after the electric-truck maker agreed to pay $125 million to settle a SEC investigation that alleges it defrauded investors.
The current-account deficit for the third quarter is ahead, while a big data dump due Wednesday and Thursday will include a third-quarter gross domestic product revision and personal income and spending data.
The stock futures ES 00, YM 00, NQ 00, are up nearly 1%, with oil CL 00, BRN 00, gaining by 1.5%. The rebound started in Asia, with the Nikkei 225 index NIK, up 2%, and European stocks SXXP. Europe's natural gas prices are rising by double digits as Russian deliveries to Germany are slowing.
The Turkish currency, the USDTRY, was up about 18% late Monday after President Recep Tayyip Erdo promised to encourage savers not to abandon it. It is up another 2.5% for Tuesday.
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