Morning Roundup

By Mark Masterson on December 7, 2021

Good morning,

Below are the news items moving markets today

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Executive Summary:

 

Brief MR this morning ahead of some meetings.

 

The market bounce continues – as we expected and hoped.  I highlighted a number of signs that the market was oversold, sentiment had been reset, and the market was likely ready to bottom – over the past week.

 

We’ll see if the rally holds today as follow through to yesterday.  If so – expect a solid finish to the year as we move into holiday season.

 

Overnight headlines out of China contributed to the positive market reaction as Chinese authorities are pumping liquidity into the economy again…..

• How much are China’s latest policy measures – releasing $188 billion of liquidity, pledging a cut in the reserve requirement ratio & signaling housing-market support – direct efforts to prevent contagion from Evergrande’s likely default. https://t.co/1mleRB4lF8

 

Also as expected, the Omicron variant looks like it is more mile and the market had an overreaction last week…..

• Coronavirus:
  • GSK says its Covid-19 antibody treatment is effective against the full combination of mutations in the new Omicron variant (Bloomberg)
  • Early data from South Africa shows share of Omicron hospital patients in ICU or on a ventilator much lower than Delta (FT)

Thus – the pull-back over the past few weeks looks like just another 5% (normal) pull-back…..

 

The S&P 500’s 5% pullback from the high on Nov 22 to last Friday’s low was the 26th correction >5% since March 2009…

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Articles of Interest:

 

• Treasury market liquidity is drying up just as new government borrowing is slowing, analysts warn Fed’s exit from QE will worsen things (Bloomberg)
• VIX stays elevated as stocks rebound, signaling volatility ahead as investors weigh hawkish Fed, Omicron and other uncertainties (Bloomberg)
• Goldman Sachs CEO David Solomon says he expects lower returns in stocks over next few years
• 2022 U.S. Market Outlook: Under Pressure Liz Ann Sonders & Kevin Gordon, Schwab

 

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Charts of the day:

 

The below updated chart shows that sentiment has been reset.

This is what is needed to provide fuel for a solid market rally.

The “dumb money” is now excessively pessimistic (red line) while the “smart money” is bullish/excessive optimism. (blue line)

This will reverse as the market rallies.

Sentimenttrader.com

 

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Quote of the day

A person’s a person, no matter how small

Dr. Seuss