Major U.S. indexes green; Nasdaq out front All major S&P 500 sectors advance: cons disc leads Dollar, bitcoin down; gold, crude up U.S. 10-Year Treasury yield slips to ~1.46% Dec 22 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com LPL EXPECTS FED TO ‘TREAD LIGHTLY’ WITH RATE HIKES IN 2022 (1300 EST/1800 GMT) The Federal Reserve’s path toward raising interest rates in the new year could be hampered by the possibility that rate hikes could invert the yield curve, LPL Financial fixed income strategist Lawrence Gillum said in a report Wednesday. At issue is that the central bank’s long-term “terminal” fed funds rate stands at 2.5%, which would take it above long-term Treasury yields. Such a move would push the yields of short-term debt above long-term debt, an inversion that has signaled every coming recession since the 1970s. “Certainly the Fed is aware of the risk of hiking interest rates to the point where the yield curve inverts. So, as it stands now, we think the Fed will likely tread lightly after the first few rounds of interest rate hikes next year,” said Gillum. LPL expects the Fed to raise rates in June 2022 and follow a “slow and deliberate” pace afterward. “Our main question remains how high and how fast will the Fed hike? The Fed’s ability to hike meaningfully may be limited at this point though so we’re likely staying in a lower rate environment for the foreseeable future,” said Gillum. (David Randall) ***** CLEAN ENERGY STOCKS IN 2021: CLASSIC "BUY THE RUMOR, SELL THE NEWS?" (1215 EST/1715 GMT) Clean energy stocks were market darlings last year. However, that blue tide, became a red wave in 2021. After posting its biggest yearly gain ever, up 203%, the WilderHill Clean Energy Index (.ECO) is down around 30% so far this year. Meanwhile, the S&P 500 index (.SPX) is up around 26% year-to-date (YTD). Of note, clean-energy stocks have been blowing in the wind since the election of Joe Biden on Nov. 3, 2020: ECO12222021 ECO12222021 ECO went parabolic from that date, ultimately topping around three weeks after Biden took office. After collapsing into a May low, the group failed to overwhelm the 38.2% Fibonacci retracement of its decline in June, and again in November. Earlier this week, the ECO nearly accomplished a complete round trip back to where it was on the day Biden was elected. The index fell to a low of 142.39 on Monday, putting it within 1% of its Nov. 3, 2020 high at 141.01. At its low on Monday, ECO had lost around half its value from its February peak. The index has since bounced, but it remains well below its descending 200-day moving average (DMA). Meanwhile, ECO relative strength vs this year"s top performing S&P 500 group, the traditional energy sector (.SPNY), has been especially weak. With the SPNY up around 46% YTD, the ECO/SPNY ratio, which is also below its 200-DMA, is flirting with its lowest levels since July 2020. And this is happening just as President Biden"s "Build Back Better" bill, which was to pay for a host of programs to thwart climate change, has met serious resistance. read more It now remains to be seen if the ECO"s bounce from a near-touch of its Biden-election day level can turn into a more-enduring rise. (Terence Gabriel) ***** JEFFERIES, BOFA SUGGEST SMALL CAPS COULD BE POISED FOR SNAPBACK RALLY (1112 EST/1612 GMT) The omicron wave may soon give way to a snapback rally in small and mid-cap U.S. stocks, Jefferies and Bank of America Global Research said in separate reports Wednesday. Small-caps have borne the brunt of investor concerns that rising case counts could weigh on the economy. Yet signs that the omicron wave are leading to fewer hospitalizations will likely bode well for the shares of smaller companies in the new year, BofA strategists wrote. “We find that small vs. large-cap performance has had a higher correlation with new hospitalizations (which have recently ticked down) than new cases over the past year,” the report noted. Attractive valuations in the benchmark Russell 2000 index compared with large cap equities should also bolster returns in the coming quarter, noted Jefferies. The price to earnings ratio of the Russell 2000 has fallen to 25 from 32 at the end of January, the report noted. “Small should beat large by over 6% over the next 12 months,” Jefferies said. “The average January rise for small in January stands at 3.7%, but when Q4 is down, they bounce back by 4.7%. When Q4 is down, the smallest of the small gains 8.4% the next January versus 7% in all periods,” the report said. Among Jefferies’ buy recommendations are Dave and Buster’s Entertainment Inc (PLAY.O), Urban Outfitters Inc (URBN.O), and National Vision Holdings Inc. (EYE.O). (David Randall) ***** DEFENSIVE MUCH? (1035 EST/1535 GMT) Despite the S&P 500 (.SPX) sitting less than 2% from its intraday record high set on Nov. 22, stocks have been rattled by concerns over a hawkish Fed, the Omicron variant spread and uncertainty surrounding chances of the Build Back Better plan passing in Washington. As such, the tone has become more defensive in the final month of the year, with sectors such as consumer staples (.SPLRCS) and utilities (.SPLRCU) the top performers thus far in December, while groups associated with higher growth prospects such as consumer discretionary (.SPLRCD) and tech (.SPLRCT) have lagged, raising the question as to whether this portends stormy seas for the broader market. In a recent note, Bespoke Investment Group looked at the outperformance, using ETFs, between staples (XLP.P) and discretionary (XLY.P) and found that when staples outperformed discretionary by 10 or more percentage points on a month-to-date basis, the S&P 500 struggled in the intermediate-term going back to 1990. Looking at the sector performance through Tuesday"s close, staples were outperforming discretionary stocks by about 9.5 percentage points: Consumer staples are on pace for their widest monthly outperformance this year Consumer staples are on pace for their widest monthly outperformance this year Jason Goepfert at Sentiment Trader also looked at the recent strength in staples and found that the percentage of staples trading above their 50-day moving averages reached 90% last week, while fewer than 25% of stocks on the Nasdaq (.IXIC) managed to hold that level, the widest spread between the two in at least 30 years. However, unlike Bespoke"s findings, Goepfert found that comparing the two wasn"t a good predictor for a market fall, with only one instance leading to a "large and protracted decline" since 1990. (Chuck Mikolajczak) ***** U.S. STOCKS CREEP AROUND IN EARLY TRADE (1003 EST/1503 GMT) Wall Street"s main indexes are roughly flat early on Wednesday, as worries lingered over the Omicron variant of the coronavirus and what it may mean for the global economic recovery. As stands, the S&P 500 is on track for a second straight close above its 50-day moving average (DMA), which sits below the market, at around 4,618. The DJI is just shy of its closely watched intermediate-term moving average, which is resistance around 35,600. The Nasdaq"s 50-DMA is up around 15,500. Here is where markets stand in early trade: earlytrade12222021 earlytrade12222021 (Terence Gabriel) ***** S&P 500: BULLS GET A BOOST (0900 EST/1400 GMT) In the wake of Tuesday"s strong bounce, the S&P 500 index (.SPX) is only down around 1.3% from its 4,712.02 November 10 record close. read more Meanwhile, the 5-day moving average of the CBOE equity put/call (P/C) ratio, which can be viewed as a contrarian measure of sentiment, is suddenly cooperating with bulls read more : PC12222021 PC12222021 The measure, which had risen to readings of 58% and 58.2% on December 6 and December 16, is now deflating to 51.8%. Of note, since bottoming at 40.2% in mid-June 2020, the P/C measure has ranged between high-30% and low-60% readings. If this pattern is continuing then the measure appears to have signaled that market sentiment became sufficiently bearish over the last several weeks or so of trading, that the SPX can mount a more sustained recovery. Therefore, traders will be watching to see if the P/C measure can oscillate back below 40% as the SPX rallies. A P/C measure breakout much above the low-60% area, however, may instead signal the onset of panic. The measure peaked at 105% on March 17, 2020, in what was a more-than-30% S&P 500 collapse. read more (Terence Gabriel) ***** FOR WEDNESDAY"S LIVE MARKETS" POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE: read more