Stock index futures point to a lower open as Omic …

Stock index futures point to a lower open amid uncertainty surrounding the Omicron variant and ahead of Fed Chairman Jerome Powell’s testimony in the Senate. Financials and retail stocks are trading lower before the bell. Stocks rebounded on Monday, led by semiconductors. Twitter CEO resigns but remains CEO of Square. Oil prices may find it difficult to rebound due to seasonal cycles. Oil projections are mixed for 2022.



5 minutes to read

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Key points to remember

  • Investors Take Profits Amid Uncertainty Over Omicron and Fed Chairman Powell’s Testimony in Senate

  • Tech stocks led Monday’s rebound

  • Seasonal forces could prevent oil prices from rebounding

(Tuesday Market opens) After the Omicron variant liquidated on Friday, things looked rather bleak for investors, but stocks rebounded on Monday. The Nasdaq Composite (COMP: GIDS) led the way, fully recouping their losses and adding a bit more for good measure. However, the S&P 500 (SPX) and the Dow Jones Industrial Average ($ DJI) were unable to recoup their losses. But the rebound has taken a turn for the worse as stock index futures point low on Tuesday morning.

A warning given by the market yesterday was that the rally was not widespread. The NYSE saw only 54% of its stocks rise, while the Nasdaq saw 57% of its stocks fall. Many smaller stocks also failed to rebound; the Russel 2000 The Small Cap Index (RUT) fell another 0.18%.

Tech stocks were among the strongest, according to Briefing.com, posting a 2.6% return on the strength of semiconductors. The PHLX Semiconductor Index (SOX) rose 4.1% that day thanks in part to Lam Research (LRCX), which closed the day up 6%. Apart from chipmakers, Twitter (TWTR) partly rallied around news of CEO Jack Dorsey’s resignation and current CTO Parag Agrawal to replace him. Another Jack Dorsey company, Square (SQ) is joining the pre-market news as Mr. Dorsey will be able to focus on the business.

Investors appear to be taking profits on Tuesday morning amid some uncertainty around the COVID-19 Omicron variant despite assurances from President Joe Biden that the closures would not be part of the plan to tackle the variant. Instead, the comments of Modern (MRNA) and Regenerate (REGN) CEOs expressing concern over whether their vaccines against Omicron will work or not appear to be pushing the sale.

Another issue that appears to weigh on investors is that Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen are scheduled to testify before the Senate Banking Committee today. President Powell’s previous comments have been a bit negative towards inflation and the New Variant. Investors are hoping to get some clarification on how the variant will influence the Fed’s actions.

Financial stocks are also pulling markets down because the 10-year Treasury yield (TNX) had fallen to 1.43% in pre-market trading. Lower yield means lower net interest rate spread. In other words, the difference between borrowing and saving is smaller for banks and reduces their profitability.

Retail stocks are trading lower as Black Friday and Cyber ​​Monday results are weaker than expected. While brick-and-mortar stores saw a 48% increase in foot traffic from a year ago according to Sensormatic Solutions, Adobe Analytics reports that consumers spent around $ 8.9 billion on Black Friday online purchases, this which was lower than 2020. This marks the first time Black Friday e-commerce numbers have declined from a year ago since Adobe began tracking online shopping in 2012.

The housing market experienced a sudden buying rush in October. The pending home sales report arrived on Monday, showing a 7.5% increase, which was well above the projected 0.9%. The news did not seem to help home builders. The S&P Homebuilders Select Industry Index ($ SPSIHO) only closed a tenth of a point higher.

Omicron variant or oil cycle

Oil price (/ CL) fell sharply last Friday as the announcement of the Omicron variant caused a wave of panic in the markets. However, on Monday, when more investors returned from vacation, oil rebounded a bit and regained some of its losses. But the seasonal cycle in oil suggests that oil may not rebound as quickly as other markets. This is because oil prices tend to be lower in the fall and winter.

According to Trader’s Almanac, crude oil has historically traded on a seasonal cycle where it tends to be weaker from October to February, then in February it tends to bottom out and strengthen throughout the year until ‘in August. Of course, this historical trend is no guarantee of future results, but it helps to be aware of these cycles. And, while you may not have noticed the seasonality of crude prices, chances are you’ve noticed that gasoline prices often rise as Memorial Day weekend approaches, which is a phenomenon linked to this cycle.

PGM Capital wrote about the seasonality of crude prices in 2018. He said the reason for the seasonality is that 80% of oil consumption occurs in the Northern Hemisphere and in particular in the United States. When winter arrives, people are less likely to drive as much and therefore demand decreases. So while many assets might recover depending on the severity of the Omicron variant, oil might not do as well, at least in the short term.

Oil and yields

TABLE OF THE DAY: DRAIN. Crude oil prices (/ CL — candlesticks) and the 10-year Treasury yield (TNX — pink) tend to move together. Data sources: ICE, S&P Dow Jones indices. Graphic source: The thinkorswim® platform. For information only. Past performance is no guarantee of future results.

Lubrication of outputs: The 10-year Treasury yield (TNX) often moves with oil prices. This means that if oil prices follow their seasonal cycle, yields can also be lower for a while. Falling yields should help bond prices and mortgage rates. However, the possibility of the Fed accelerating its cut plans could be a spoiler for those hoping for a rate cut. The Fed bought bonds to keep yields and interest rates low. If he buys less and less bonds, yields could rise along the curve.

Mains switch: Falling oil prices could be a drag on energy stocks, as falling oil prices mean lower profit margins. However, if oil prices remain low and yields / interest rates follow, tech stocks could benefit. Over the past year, I have spoken several times about how interest rates affect the way investors value stocks and how tech stocks tend to perform better when rates are low. Perhaps this is one of the reasons the tech-rich Nasdaq Composite appears to have recovered from news of the variants faster.

However, this potential drag on energy stocks and the potential rise in tech stocks might only last as long as oil prices follow the seasonal cycle. If oil prices start to turn bullish in the first quarter, yields could rise again and tech stocks could weaken.

Checking the oil: So, with so much going on based on oil prices, what are the experts saying? On Monday, analysts at JP Morgan predicted oil could hit $ 150 a barrel in 2022 due to OPEC’s lack of capacity to meet demand. But not all analysts agree with the projection. Barclays analysts last week raised their oil price projection for 2022 from $ 77 to $ 80, which essentially meant they believed oil prices would not go higher than they were. already because oil was just over $ 80 at the time. In June, analysts at Bank or America were forecasting $ 120 in 2022. With these kinds of projections from experts, it can be difficult to know where oil prices could be heading in the short and long term.

Good trade,

not a word

@TDAJJKinahan

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