Major U.S. indexes gain, Nasdaq leads; banks index surges >3% Energy leads S&P 500 sector gainers; real estate weakest group Euro STOXX 600 index ends up ~0.45% Dollar, crude up; bitcoin, gold dip U.S. 10-Year Treasury yield rises to ~1.61% Jan 3 - 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 DOLLAR TO EXTEND GAINS THIS YEAR AS FED READIES RATE HIKES (1215 EST/1715 GMT) The U.S. dollar is likely to remain triumphant this year as it benefits from more hawkish central bank policy from the Federal Reserve than peers, according to analysts at Brown Brothers Harriman. The greenback ended 2021 higher against most majors, with only the Canadian dollar managing a 0.7% gain against the U.S. currency. The British pound dipped 1%, the Norwegian Krone lost 2.7%, while the Japanese yen , Swedish krona and euro dropped 10.3%, 9.1% and 7%, respectively. “The U.S. economy remains poised to outperform in 2022, which in turn will give the Fed greater confidence in normalizing policy over the course of the year,” analysts Win Thin and Ilan Solot said in a report on Monday, adding that “this stands in stark contrast to the ECB and BOJ, both of which are nowhere close to hiking rates.” Fed funds futures traders are pricing in three rate hikes by the Fed by the end of 2022, with the first fully priced for May. < 0#FF:> However, BBH says the market may actually be underestimating the Fed’s capacity to tighten, noting that swaps markets are pricing in a terminal fed funds rate of 1.5% “which history suggests is much too low.” “We believe the strong dollar trend remains intact for 2022,” the analysts said. (Karen Brettell) ***** WHAT A YEAR! NOW WHAT? (1125 EST/1625 GMT) While some of the bleaker aspects of 2021 may cause many of us to look back less than fondly, CFRA"s Sam Stovall"s note highlighted some positives, at least for the U.S. stock market. The firm"s chief investment strategist says 2021 ranks 12th best since WWII in price returns while its third consecutive double-digit gain was only the fifth time there were as many or more straight double-digit increases, Stovall writes. Since 1945, history shows price returns, after 20% or more annual advances, averaging 10.4% with gains occurring 80% of the time. In comparison he points to an average gain of 9.3% with 74% frequency for an advance for all years. As for all-time highs, the S&P 500 boasted 70 for 2021, which is 2.5 times the average since 1954 and the second highest number since the 77 new highs recorded in 1995 and 1954 - the year the S&P recovered losses from the 1929-32 bear market. In volatility, 2021 wasn"t so dramatic with 55 daily moves of 1% or more in either direction just a little higher than the 51 average since WWII. But in earnings and revenue gains, 2021 is expected to be above average with FY operating EPS growth estimates for 43.8% - being the biggest gain since 1988, when comparable records began. And estimates for 2021 revenue growth of 14.5% would be the highest since 1974, Stovall writes. However the strategist does sign off with a note of caution: With the S&P closing the year with a trailing operating P/E of 23.2 - its 6th highest since 1988 - this "indicates an uncomfortable level of optimism when compared with the average year-end P/E of 18.8." (Sinéad Carew) ***** 2022 SAUNTERS IN LIKE A LAMB: MARKIT, CONSTRUCTION OUTLAYS (1056 EST/1556 GMT) The first trading day of the new year greeted investors with a subdued duet of economic reports. Activity at U.S. factories lost velocity in the last month of 2021, expanding at its weakest rate in a year. Global financial information firm IHS Markit"s final purchasing managers" index (PMI) print for December (USMPMF=ECI) confirmed a slight pullback to 57.7 - its advance "flash" take released earlier in the month was 57.8 - marking a 0.6-point downtick from November. A PMI number over 50 signifies increased activity over the previous month. "December saw another subdued increase in US manufacturing output as material shortages and supplier delays dragged on," writes Sian Jones, IHS Markit"s senior economist, who also found reasons to be cheerful. "The end of the year brought with it some signs that cost pressures have eased," Jones adds. "The uptick in input prices was the slowest for six months." While U.S. goods makers have had to contend with a stricken supply chain even as consumer demand has shifted to services, they continue to weather the COVID storm as least as well as its global rivals, and far better than China. Markit PMI Markit PMI On Tuesday, the Institute for Supply Management (ISM) is due to release its factory PMI data, which analyst expect to come in at a slightly rosier reading of 60.1. Markit and ISM PMIs differ in the weight they apply to various subcomponents (employment, new orders, etc.). The graphic below shows the extent to which the dueling PMIs agree (or not): Markit v ISM Markit v ISM In a separate report, outlays on U.S. construction projects (USTCNS=ECI) grew by 0.4% in November, softer than the 0.6% consensus. read more But this disappointment was mitigated by the Commerce Department upwardly revising its previous October reading to 0.4% from 0.2%. Once again, spending on residential projects - increasing 0.9% as homebuilders scramble to keep up with booming demand - did the heavy lifting, offsetting a 0.2% decline in government expenditures on public works. Construction spending Construction spending Wall Street is green in morning trading as investors greeted 2022 in a buying mood. Even with some sharp early swings, all three major U.S. stock indexes are in positive territory, with energy (.SPNY), small caps (.RUT), chips (.SOX), FANGs (.NYFANG) and banks (.SPXBK) leading gains. Transports (.DJT) are in the red. (Stephen Culp) ***** AS YIELDS RISE, U.S. STOCKS STRUGGLE TO HOLD GAINS (1002 EST/1502 GMT) Major U.S. indexes kicked off the first trading day of 2022 to the upside as equity markets looked to extend a recovery from the pandemic shock into the new year. However, an initial 0.6% thrust in the S&P 500 (.SPX) ran out of steam about 10 minutes into the session. The SPX is now just above flat on the day. Meanwhile, the U.S. 10-Year Treasury yield is on an upswing. The yield is popping to the 1.60% area, putting it at a six-week high. With the higher yields, banks (.SPXBK) are especially strong. Though, the NYSE FANG+ Index (.NYFANG) is also managing to be an outperformer on the day. This with NYFANG member Tesla charged up around 10% after record deliveries. read more Bond-proxy sectors are the biggest laggards. Here is where markets stand early on the first trading day of 2022: earlytrade01012022 earlytrade01012022 (Terence Gabriel) ***** WILL 2022 BE VALUE"S YEAR? (0900 EST/1400 GMT) As of the end of 2021, the S&P 500 Growth index (.IGX) has outperformed the S&P 500 Value index (.IVX) for five-straight years: GVV01012022 GVV01012022 Using Refinitiv data back to 1995, that tied the 2007-2011 period for the longest stretch of growth outperforming value. However, on a rolling five-year basis, this recent streak has been more pronounced, with the IGX/IVX ratio rising 78% into 2021 vs a 36% gain into 2011. Although, the ratio rose last year, there was a sharp deceleration vs 2020, which was growth"s best-year ever vs. value. The ratio surged about 34% in 2020, just slightly exceeding a year-2000 jump of about 33%. In 2021, it posted a rise of just over 7%. And growth stumbled sharply vs value into 2021"s year-end. In December, the ratio suffered its biggest monthly percentage fall since February. Meanwhile, the growth vs value battle still looks to hinge on action in tech (.SPLRCT) vs financials (.SPSY). Late last year, tech accounted for around 56% of the SPDR S&P 500 Growth ETF"s (SPYG.P) weighting. At 23%, financials were the biggest exposure for the SPDR Value ETF (SPYV.P). After going parabolic, the S&P tech sector, on a monthly basis, peaked vs. the financial sector in August 2020. The tech/financials ratio then turned down sharply: TvF01012022 TvF01012022 Unless, that tech/financials ratio"s August 2020 high is overwhelmed, the recent recovery off the May 2021 trough can still prove to be a counter-trend bounce. If so, and tech resumes its decline vs financials, 2022 may well be the year growth ends its yearly winning streak vs value. (Terence Gabriel) ***** FOR MONDAY"S LIVE MARKETS" POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE: read more