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STOCK BUYBACKS MAY KEEP CORRECTIONS BRIEF, EVEN AS VOLATILITY INCREASES (1055 EST/1555 GMT)
Companies have been ramping up repurchases of their own shares even as retail stock purchases slow and institutions pare equity holdings. That is likely to mean that stock market corrections will remain shallow, though market volatility is expected to increase, said Brian Reynolds, chief market strategist at Reynolds Strategy.
Net Corporate buybacks hit a record $263 billion in the third quarter, and outpaced investor inflows for the first time since the pandemic began, Reynolds said in a report on Monday, citing flow of funds data.
When you break down the data further it shows that companies, retail investors and institutional investors are all on “vastly different trajectories,” he added, noting that this “augers for more equity volatility in 2022 than was seen in 2021, though less so on average than was seen in the prior bull market.”
The debt-fueled corporate share repurchases will likely be strong enough to keep stock market corrections brief, though they will not prevent a panicky selloff as the Wall Street desks that execute corporate share buybacks prefer to buy shares as they recover, after the selling is exhausted, Reynolds said.
Retail investors are also likely to help keep pullbacks brief and smaller, on average, than were seen in the last bull market, he said.
However, Reynolds sees stocks at risk of a 10% correction if inflation expectations fall too rapidly, and the spread of the Omicron COVID variant could contribute to such a move.
The bearishness of institutional investors, who turned into sellers in the third quarter, is also likely to keep the market volatile. “Our overall view is that of a bull market that will be pockmarked with brief, but scary corrections,” Reynolds said.
(Karen Brettell)
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U.S. STOCKS REEL IN EARLY TRADE (0953 EST/1453 GMT)
Major U.S. indexes are sharply lower on Monday, dragged down by concerns about the impact of tighter COVID-19 curbs on the global economy, and a potentially devastating setback to President Joe Biden's investment bill.
Among other developments, China cut its lending benchmark loan prime rate (LPR) for the first time in 20 months on Monday read more , and Turkish markets are under pressure following President Tayyip Erdogan's defense of low interest rates on Sunday.
With this, the Euro STOXX 600 (.STOXX) is off around 1.4%. However, it was down 2.6% at its worst level of the day.
In the early throes of U.S. action, it is a sea of red. With this, more economically sensitive S&P 500 (.SPX) sectors are taking the biggest hits, while, not surprisingly, defensive bond-proxy groups are off the least.
Here is an early U.S. trading snapshot:
(Terence Gabriel)
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DOW INDUSTRIALS: SICK AGAIN (0900 EST/1400 GMT)
U.S. equity index futures are tumbling on Monday, dragged down by fears over tighter restrictions on the global economy, as a result of the Omicron variant.
Given action in CBT e-mini Dow futures , the Dow Jones Industrial Average (.DJI) is poised to slide more than 400 points when regular-session trading kicks off.
This relapse is occurring after the blue-chip average failed to register a close above the 76.4%/78.6% Fibonacci retracement zone of its November-December slide at 35,961.87/36,018.16, keeping alive the potential that its December bounce was counter-trend read more :
With early weakness Monday, the DJI can once again threaten its rising 200-day moving average (DMA), which ended Friday around 34,605.
Key support resides at a broken log-scale resistance line from 1929, which now comes in around 34,100, and the Dow's Dec. 1 low, which is at 34,006.98.
Closing below this support zone can suggest the potential for a much greater decline, given that trend line has subsequently contained Dow weakness since it was first overwhelmed in March.
A reversal back over the 50-DMA, however, which ended Friday around 35,545, can see the Dow make another go at the Fibonacci barrier. read more
(Terence Gabriel)
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