Major U.S. indexes end sharply lower after "hawkish" Fed minutes Real estate weakest major S&P sector; staples falls least Dollar, bitcoin, gold fall; crude up U.S. 10-Yr yld hit highest level since Apr 2021, last at ~1.696% Jan 5 - 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 ALL IT TOOK WAS A FEW MINUTES, AND THE MARKET TANKED (1607 EST/2107 GMT) The S&P 500 (.SPX) and Nasdaq (.IXIC) added to losses, while the Dow (.DJI) turned negative on Wednesday after the release of the latest FOMC meeting minutes showed that officials said the central bank may need to raise interest rates sooner than expected and reduce asset holdings quickly. With this, the U.S. 10-Year Treasury yield popped to its highest level since April 2021, and the Nasdaq suffered its biggest daily percentage decline since late-February of last year. Value (.IVX) outperformed growth (.IGX). That said, every major S&P 500 sector quickly lost ground from around the time the minutes were released through to the close. Consumer discretionary (.SPLRCD), tech (.SPLRCT) and communication services (.SPLRCL) were the weakest sectors over the final two hours of the trading day. Of note, however, materials (.SPLRCM), and energy (.SPNY), which were among the most resilient sectors on a full-day basis, were hit almost as hard over the final two hours. Defensive sectors saw the smallest declines over this period. Overall, on the day, FANGs (.NYFANG), small caps (.RUT) and chips (.SOX) were hit especially hard, while banks (.SPXBK) also lost ground. Regarding the minutes, Kim Rupert, Managing Director, Global Fixed Income Analysis, at Action Economics, said: "It was certainly more hawkish than I expected, and I think the market expected, given the selloff here." Rupert added "The fact that the balance sheet was discussed, and in more detail than we thought, sets the market up for possibly four rates hikes this year, and perhaps starting as soon as March.” Here is Wednesday"s closing snapshot: Closer01052021 Closer01052021 (Terence Gabriel, Karen Brettell) ***** 2022: ANOTHER POSITIVE YEAR FOR STOCKS, BUT NOT WITHOUT SOME INDIGESTION (1410 EST/1910 GMT) Jim Paulsen, chief investment strategist at The Leuthold Group, is out this week with his 2022 view on stocks. Paulsen says to expect another positive year for the U.S. stock market, but with a 10% to 15% correction along the way. Overall, his "best guess is the S&P 500 may rise perhaps as high as 5,300 by mid-year, and after a correction, end 2022 near 5,000." From the S&P 500"s (.SPX) current level of round 4,775, his year-end target equates to a near 5% rise. However, Paulsen believes that the broader market, including small- and mid-caps, cyclicals, value stocks, and international equities, all seem poised to outpace the large-cap S&P 500 this year. He sees three primary forces that should ultimately underpin stocks this year: strong profits, low yields, and a revival in confidence. As for risks to the economy and for investors, Paulsen thinks COVID could be the biggest issue. "As the Omicron variant has illustrated, a few simple mutations in the virus could nullify existing treatments and vaccines and quickly place the world economy back to square one in this pandemic. If such a mutation occurred, it would be devastating for the stock market and probably push the ten-year bond yield below 1%." (Terence Gabriel) ***** BIGGEST Q4 PROFIT GAINS SEEN IN ENERGY, MATERIALS, INDUSTRIALS (1315 EST/1815 GMT) The energy, materials and industrial sectors are expected to have had the biggest year-over-year earnings gains in the fourth quarter, according to IBES data from Refinitiv. Still, all 11 of the major S&P 500 sectors are slated to show profit growth in the quarter, with overall S&P 500 earnings seen up 22.3% from the year-ago quarter. But those economically sensitive sectors have also seen among the biggest market gains since the start of the year, with the S&P 500 energy index (.SPNY) up more than 8% since Dec. 31, and materials (.SPLRCM) and industrials (.SPLRCI) up more than 1% each. The S&P 500 (.SPX) is nearly flat year-to-date. Fourth-quarter earnings are slated to kick off late next week with results from some of the big banks. (Caroline Valetkevitch) ***** 2021 SAW A LOT LESS VOLATILITY IN THE S&P 500 (1240 EST/1740 GMT) While last year"s stock market performance beat the prior year"s annual gains, 2021 was certainly less dramatic. Albeit with a few hiccups, gains in the S&P 500 (.SPX) last year appeared mostly steady, at least compared to 2021, when the S&P 500 lost a third of its value in about a month, only to abruptly rebound and soar to record highs. Adrenaline junkies and volatility-focused traders last year were left relatively disappointed, with the S&P 500 posting just seven sessions where the index gained or lost over 2%. That compares to 44 times in 2020 that the S&P 500 gained or lost 2%. The Nasdaq (.IXIC) also saw a decline in volatility last year, but less than the S&P 500. The Nasdaq posted 24 sessions up or down more than 2% last year, down less than half from the 55 such sessions in 2020. Reuters Graphics Reuters Graphics (Noel Randewich) ***** US TREASURY YIELDS FACE TECHNICAL RESISTANCE AFTER BIG JUMP (1225 EST/1725 GMT) Treasury yields are pushing up against strong technical resistance after posting large gains so far this year, and a break above these levels will likely be the deciding factor on whether yields are likely to continue to gain near-term, according to Bank of America. Benchmark 10-year yields on Wednesday were close to a six-week high of 1.686% reached on Tuesday, and are up around 20 basis points so far this year and 30 basis points since Dec. 20. However, “there is still more to technically prove to have conviction this selloff is different than the failed selloffs of 2H21,” Paul Ciana, technical strategist at BofA said in a report on Wednesday. The 10-year yield faces resistance at 1.70% to 1.79%, where buyers so far have stepped in and “it’s still a range until a weekly closing breakout above the trend line of 1.7% occurs,” Bank of America said. In particular, the area from 1.77% to 1.79% has strong technical resistance, with 1.776% being the 2021 yield high, while 1.79% is currently the 200-week simple moving average. This area would need to break for yields to then move to the 2% and possibly 2.13% level, Bank of America said. Jim Vogel, interest rate strategist at FHN Financial, also agreed that this area is key to whether the yields will keep rising. “Traders keep thinking of 1.75% as a next target for 10s on the way toward 2.0%, but there has been almost no trading above 1.70% in the last 12 months,” Vogel said in a note. “For the rest of January, then, technicals suggest either a hold below 1.72% or a leap into the mid-1.80s as the upper end of the range.” Treasury yields face technical resistance Treasury yields face technical resistance (Karen Brettell) ***** EUROPE: NO 2022 DIP TO BUY YET! (1154 EST/1654 GMT) The pan-European STOXX 600 has ended the day on a modest 0.1% rise which constitutes a third straight session of gains this year. While there"s a sense of cautious optimism that comes across market research notes when it comes to European equities, there"s equally a scarcity of pundits advising investors to go all in. "Given the maturing cycle, bullish consensus and elevated positioning after an almost uninterrupted rally over the last 20 months, investors should expect bumps in the road and own hedges", Barclays equity strategy team said in a note this morning. But at the end of the day, Tina (There Is No Alternatives) is still doing her thing, they argue. "Alternatives to equities are still lacking, with cash/bond/dollar relative safe havens well owned, and we think buying on dips will keep working", they added. That being said, you need a dip to buy-the-dip and so far in 2022, there is none to be found. While the pandemic, China"s regulatory crackdown and rising inflation risks are not putting investors off the stock market, it"s worth noting that danger could come from other directions. Sebastien Galy at Nordea Investments wrote that "the risk to watch for though is a political one", in a reference to the tensions with Russia over Ukraine. Peter Garnry, head of equity strategy at Saxo Bank takes the view that "the biggest risk to the positive sentiment is the ongoing energy crisis in Europe." Anyhow, for the moment, European stocks can thank the automotive sector for pulling the rest of the market up. The sector reached a new record high and jumped 2.4% today, taking its 2022 rise to a whopping 8.2%. See: Europe"s auto stocks hit record high as traders bet on strong 2022 read more Auto sector versus STOXX Auto sector versus STOXX (Julien Ponthus) ***** "21 WAS NOT A TERRIBLE YEAR FOR ANALYST STOCK PICKS (1129 EST/1629 GMT) Last year was mixed for analysts trying to pick winning stocks, with many of their top picks beating the broader market. Bio Rad Laboratories (BIO.N) was the most favored S&P 500 (.SPX) stock at the start of last year, according to Refinitiv data. The biotech ended 2022 with a gain of 30%, just above the S&P 500"s 27% annual rise. This analysis is based on the average analyst ratings of all of the S&P 500"s current components, and excludes companies covered by no, or only one, analyst. It does not include stocks that exited the S&P 500 last year. Jacobs Engineering Group , Alphabet"s class C shares and Microsoft (MSFT.O) were the second, third and fourth most highly recommended stocks, and they surged 28%, 65% and 51%, respectively. What of analysts" least liked stocks? Of the 10 stocks most poorly rated by analysts heading into 2021, half managed to beat the index, including a 49% surge by laboratory equipment seller Mettler-Toledo International Inc (MTD.N). The analysts" mixed performance 2021 is comparable to previous years and underscores how difficult it is to consistently beat the market. In the same vein, BofA Global Research said in a note on Tuesday that 40% of large cap actively managed mutual funds exceeded their benchmarks last year, their best hit rate in three years. On average since 2003, only 37% of funds per year have beaten their benchmark, according to BofA. Of S&P 500 stocks in the analysis, 380 were rated "buy" or "strong buy" at the end of 2021, up from 353 at the start of the year, according to Refinitiv data. 124 stocks were rated "hold" at the end of 2021, down from 148 at the start of the year. At the start of 2021, only American Airlines Group (AAL.O) had an average "sell" rating, and it went on to gain 14% by year end. Of the stocks rated "hold" at the start of 2021, just under half beat the S&P 500, about the same ratio as stocks rated "buy". As 2022 kicks off, the S&P 500"s top rated stocks are retailer LKQ Corp (LKQ.O), Alphabet"s class C shares and healthcare equipment seller Steris (STE.N). The most negatively rated stock is Consolidated Edison Inc (ED.N), the only S&P 500 stock with an average rating of "sell". That utilities company is followed by telecom Lumen Technologies Inc and distillery Brown-Forman Corp (BFb.N). (Noel Randewich) ***** NEXT STOP, PAYROLLS: WEDNESDAY INDICATORS POINT TO RECOVERY HOMECOMING (1051 EST/1551 GMT) Data released on Wednesday provided upbeat news that the U.S. economy express could pull into Normaltown ahead of schedule. A surge in hiring, continued (though abating) expansion in the services sector, and a housing market returning to earth all point to a welcome return to pre-COVID equanimity. First, private U.S. employers added a whopping 807,000 jobs last month, according to ADP. read more The payrolls processor"s National Employment index (USADP=ECI) overshot the 400,000 consensus by a mile and came in 121% above the level analysts expect the Labor Department"s more comprehensive employment report to show on Friday. If ADP is a prologue to that jobs report, it implies an uptick in labor market participation and a sizeable step back toward the "full employment" goal set by the Federal Reserve as a precondition for tightening its pandemic-era monetary policy. Ian Shepherdson, chief economist at Pantheon Macroeconomics, writes that the ADP print points to a "fading of some of the forces holding back labor supply - enhanced/extended unemployment benefits, and school/childcare closures - combined with strong labor demand, triggered rising participation late last year, facilitating a surge in payrolls." "This could be interrupted in the January numbers by the Omicron Covid wave," he warns. ADP ADP Next, the services sector, while showing some loss of momentum, notched its 17th-consecutive month of expanded activity in December. Global financial information firm IHS Markit"s final reading of its services PMI (purchasing managers index) (USMPSF=ECI) came in at 57.6, marking a slight deceleration from November"s even 58 print. A PMI reading over 50 indicates a monthly increase in activity. While customer-facing services suffered the brunt of initial social distancing mandates to contain the pandemic, they have since rebounded in response to booming demand, even as the health crisis continues to drone on. "Although the expansion in output softened slightly, the flow of new orders picked up, with buoyant client demand rising at the fastest pace for five months," says Sian Jones, senior economist at IHS Markit. Be that as it may, while supply chains are showing signs of untangling, and the tight labor market appears to be loosening, input prices and hot wage inflation remain headwinds. "Subsequently, soaring wage bills and increased transportation fees drove the rate of cost inflation up to a fresh series high," Jones adds. The Institute for Supply Management (ISM) is due to release its services PMI number on Thursday, and it is expected to come in at 66.9, a 2.2-point deceleration from November. Markit PMI Markit PMI Finally, demand for home loans slipped by 5.6% to a near two-year low in the closing days of 2021 as interest rates resumed their uphill climb. The Mortgage Bankers Association"s (MBA) weekly report showed the average 30-year fixed contract rate (USMG=ECI) adding a mere 2 basis points to 3.33%, but this was enough to prompt a 10.2% drop in applications to purchase homes (USMGPI=ECI) and a 2.5% decline in refi demand (USMGR=ECI). While "the data point to a loss of momentum in purchase applications and home sales," writes Nancy Vanden Houten, lead economist at Oxford Economics, she also notes the data is often volatile around the holidays. Still, the housing market faces challenges in the coming year. "We expect existing home sales to lose some steam and then trend sideways over the course of 2022 as the market navigates headwinds in the form of limited supply and declining affordability and tailwinds from resilient demand," Houten adds. All told, mortgage demand is down more than 30% from a year ago, when the pandemic-driven stampede for the suburbs hit its zenith, sending housing inventories to record lows and launching home prices to the moon. MBA MBA Wall Street is serving a mixed platter of hot and cold in morning trading. The S&P 500 and the Nasdaq (.IXIC) are once again being dragged into the red by tech (.SPLRCT), while industrials (.SPLRCI) and financials (.SPSY) help set the Dow (.DJI) on a course for its third consecutive record closing high. (Stephen Culp) ***** U.S. STOCKS MIXED, BUT VALUE-TILT PERSISTS (0959 EST/1459 GMT) Wall Street"s main indexes are mixed early Wednesday ahead of minutes from the Federal Reserve"s December meeting, as a rise in U.S. Treasury yields continues to hit technology-heavy growth stocks. The Dow Jones Industrial Average (.DJI) and S&P 500 (.SPX) are near flat, while the Nasdaq Composite (.IXIC) is more forthrightly red. This, as the U.S. 10-Year Treasury yield edges up to the 1.66% area, and the tilt toward value persists. The S&P 500 value (.IVX)/S&P 500 growth (.IGX) ratio is on track for its biggest weekly rise since early May. That said, the S&P 500 Banks index (.SPXBK) is now slightly negative, and chips (.SOX) are well off their early lows. The NYSE FANG+ index (.NYFANG) has ticked green. Here is where markets stand about 30 minutes into the trading day: earlytrade01052021 earlytrade01052021 (Terence Gabriel) ***** 2022 NASDAQ COMPOSITE: YEAR OF THE ROADRUNNER OR THE COYOTE? (0900 EST/1400 GMT) The Nasdaq Composite (.IXIC) accomplished a rare feat last year. That is, its entire 2021 trading range was above its upper yearly Bollinger Band (BB): IXIC01052021 IXIC01052021 Bollinger Bands (BB) are envelopes, or trading bands, plotted at a level of standard deviation above and below a simple moving average of price. Given that the bands are based on standard deviation, they adjust to swings in volatility. The bands can help answer the question of whether price is high or low on a relative basis. Using Refinitiv data, the IXIC has ended a year above its upper yearly BB - or more than two standard deviations above its 20-year moving average - ten times, or about 43% of the time. This includes a current nine-year streak from 2013 to 2021. However, besides the building streak, what was especially unique about last year is that the Composite"s 12,397.05 low was above its upper yearly BB, which ended the year at 12,274.516. This is the first time the IXIC has managed this in 23 years of data, which makes it just over 4% of the time. When looking at the greater histories of the Dow (.DJI) (107 years of data), and S&P 500 (.SPX) (75 years of data), these indexes" entire yearly ranges have only been above their upper yearly BB once (0.9% of the time), and twice (2.7% of the time), making it a rare event. The Composite may yet accomplish this feat again in 2022, but neither the Dow or SPX has ever managed do it two-straight years. It is just the start of 2022, and the market"s exact path is highly uncertain. However, given that the IXIC"s upper yearly BB currently resides at 14,173, or nearly 10% below Tuesday"s close, and that it will adjust for volatility, potential exists for some especially wild action throughout this year, whether it be a big upside run, a cliff dive, or both. (Terence Gabriel) ***** FOR WEDNESDAY"S LIVE MARKETS" POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE: read more Terence Gabriel is a Reuters market analyst. The views expressed are his own