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Daily Market Report | December 31, 2021

US FINANCIAL MARKET

Stocks Waver as Year Nears End – Wall Street Journal, 12/31/2021

  • U.S. stocks were little changed on the last trading day of 2021, indicating a quiet finish in a year of repeated records on Wall Street on low interest rates and the rollout of Covid-19 vaccines.
  • The S&P 500 traded around the flatline Friday morning, bouncing between small gains and losses. The broad-market index is on course to finish the year about 27% higher, which would be its largest annual percentage gain since 2019.
  • The tech-focused Nasdaq Composite also wobbled after the opening bell, while the Dow Jones Industrial Average edged down less than 0.1%.
  • The calm trading Friday juxtaposes a busy year in markets in which individual investors piled into meme stocks and the rollout of Covid-19 vaccines and low interest rates motivated investments in equities.
  • These factors helped lead the S&P 500 to close at a record 70 times this year, more than a quarter of all trading days, according to Dow Jones Market Data.
  • Much of the broader market rally was also driven by a small group of massive stocks, such as Apple, Tesla and Microsoft.
  • Microsoft and Tesla shares have each risen more than 50% this year, while Apple has gained more than 30%.
  • Investors are watching a number of risks heading into 2022 that could derail the market’s rally.
  • Cases of the Omicron variant of Covid-19 are surging, causing some businesses to curtail services and hours as workers call in sick.
  • U.S. inflation reached a nearly four-decade high last month, raising questions about how many price increases Americans can absorb and if that will affect corporate earnings.
  • The Federal Reserve has also set the stage for a series of interest-rate increases beginning next spring.
  • On Friday, shares of Ford Motor led the S&P 500, gaining 2.6%. The car maker’s stock, which has been a favorite among retail investors all year, soared nearly 140% this year, on track for its biggest annual gain since 2009.
  • In bond markets, the yield on the benchmark 10-year Treasury note ticked down to 1.510% from 1.514% Thursday.
  • The yield rose 0.601 percentage point this year as of Thursday, the largest one-year yield gain since 2013, according to Dow Jones Market Data. Investors have sold out of government bonds, pushing up yields, because holding bonds that yield less than inflation means locking in a loss. Yields and prices move inversely.
  • Overseas, the pan-continental Stoxx Europe 600 edged almost 0.2% lower, with markets closed in Germany, Spain and Italy.
  • The broad-market index has risen more than 20% this year.
  • Shares of Chinese internet and technology companies jumped in Hong Kong on the last day of the year, following a surge in their corresponding American depositary receipts overnight.
  • The Hang Seng Tech Index, which tracks the 30 largest technology companies listed in the city, rose 3.6% on Friday in a holiday-shortened trading session. The broader Hang Seng Index gained 1.2%.

U.S. Hits Record Number of New Covid Cases Twice in Same Week – Wall Street Journal, 12/31/2021

  • New daily Covid-19 cases in the U.S. set a fresh record on Wednesday, as the World Health Organization warned governments that easing self-isolation rules and testing requirements come with a trade-off between slowing transmission rates and keeping economies running.
  • Cases in the U.S. climbed to 300,887 a day on a seven-day average, according to a Wall Street Journal analysis of Johns Hopkins University data.
  • The new record comes just after the seven-day average hit 265,427 on Tuesday.
  • The post-Christmas surge in cases has pushed that average past its previous peak of 251,989 set on Jan. 11, 2021, although there was less testing during the earlier stages of the pandemic.
  • As of Thursday, the seven-day daily average of hospitalizations for confirmed or suspected Covid-19 was 81,831 a day, according to data from the U.S. Department of Health and Human Services.
  • That is an increase of about 19% over the past two weeks.
  • The rising caseloads are affecting industries across the U.S. On Thursday, Amtrak canceled trains on the Northeast Corridor and some of its long-distance routes, beginning Friday, as the railroad struggles with staffing shortages amid the latest surge in Covid-19 infections.
  • Many of the company’s critical functions require safety certification and employees can’t be readily replaced when out sick.
  • Anthony Fauci, the Biden administration’s chief medical adviser, said all indications point to Omicron being less severe than the Delta variant and that vaccine booster shots will be critical to the U.S.’s approach to tackling the rise in infections.
  • Dr. Fauci also said that a second booster shot might be needed to top up immunity levels, but there isn’t enough data yet to determine the durability of the protection provided by the current round of boosters.
  • Other countries, including France and the U.K., have also seen hospitalizations lag behind record-high numbers of new infections in recent days, prompting some to reassess self-isolation periods for people infected or exposed to the virus to minimize the disruption to healthcare and other critical sectors.
  • Spain on Wednesday said it would reduce the quarantine period for people who have tested positive for Covid-19 to seven days from 10 as infections surged to record highs.
  • Italy said it would abandon self-isolation requirements for those coming into contact with people testing positive, provided they have been vaccinated or have recently recovered from infection.

Furniture giant IKEA raises prices as supply chain woes persist – CNBC, 12/31/2021

  • The world’s biggest furniture brand IKEA is raising prices by an average of 9% as it faces increasing costs in transport and raw materials, the owner of most of its stores worldwide said on Thursday.
  • IKEA had previously said it was leasing more ships, buying containers and re-routing goods between warehouses to mitigate supply chain disruptions but said it was now having to pass the costs onto customers, as it expected the turbulence to continue.
  • Ingka Group said prices would go up around 9% on average across its markets, with local variations reflecting different inflationary pressures, including commodity and the supply chain issues.
  • “IKEA continues to face significant transport and raw material constraints driving up costs, with no anticipated break in the foreseeable future,” the group said in a statement, adding it expected disruptions to continue “far into 2022″.

Exxon signals fourth quarterly profit in a row despite charges – Reuters, 12/31/2021

  • Exxon Mobil on Thursday signaled a return to annual profit for 2021 as stronger oil and gas prices drove a gain of up to $1.9 billion in operating profits that exceeded one-time charges.
  • The largest U.S. oil producer issued a snapshot of final quarter results that showed it expects sequentially higher profit from oil and gas production. Operating profits in refining and chemicals will be flat to lower, a securities filing showed. Official results are due out Feb. 1.
  • Thursday’s regulatory filing signaled one-time charges for asset impairments and contractual costs could lower oil and gas earnings by up to $1.2 billion. It did not provide details on the production assets affected.
  • Exxon also said lower margins in chemicals could lower results by $600 million to $800 million, compared to the $2.14 billion third-quarter chemicals profit.
  • Refining margins could stay flat or drop by $200 million compared to the $1.23 billion profit the previous quarter.
  • Offsetting the negative impacts, Exxon signaled mark-to-market gains of up to $1.1 billion for oil and gas and in refined products. It also said proceeds from asset sales including its U.K. North Sea assets could deliver up to $500 million.

Global M&A volumes hit record high in 2021, breach $5 trillion for first time – Reuters, 12/31/2021

  • Global dealmaking is set to maintain its scorching pace next year, after a historic year for merger and acquisition (M&A) activity that was fueled largely by easy availability of cheap financing and booming stock markets.
  • Global M&A volumes topped $5 trillion for the first time ever, comfortably eclipsing the previous record of $4.55 trillion set in 2007, Dealogic data showed. The overall value of M&A stood at $5.8 trillion in 2021, up 64% from a year earlier, according to Refinitiv.
  • Flush with cash and encouraged by soaring stock market valuations, large buyout funds, corporates and financiers struck 62,193 deals in 2021, up 24% from the year-earlier period, as all-time records tumbled during each month of the year.
  • The United States led the way for M&A, accounting for nearly half of global volumes – the value of M&A nearly doubled to $2.5 trillion in 2021, despite a tougher antitrust environment under the Biden administration.
  • The largest deals of the year included AT&T Inc’s $43 billion deal to merge its media businesses with Discovery; the $34 billion leveraged buyout of Medline Industries; Canadian Pacific Railway’s $31 billion takeover of Kansas City Southern; and the breakups of American corporate behemoths General Electric and Johnson & Johnson.
  • Despite a slowdown in activity in the second half, dealmaking involving special purpose acquisition companies further boosted M&A volumes in 2021. SPAC deals accounted for about 10% of the global M&A volumes and added several billions of dollars to the overall tally.

Desktop PC Sales Rebound as Pandemic Work Evolves – Wall Street Journal, 12/31/2021

  • Desktop shipments world-wide are expected to be up about 7% this year after dropping sharply during the first year of the pandemic, according to International Data Corp and computer companies such as Dell Technologies.
  • Laptop demand also has remained hot, though annual shipment growth reported by IDC this year is expected to ease to 15% from the 29% surge in the first year of the pandemic.
  • The resurgence of the desktop is expected to have its limits. IDC forecasts global desktop shipments will drop 10% by 2025 and aren’t projected to return to pre-pandemic levels. Even so, the desktop isn’t expected to disappear entirely.

U.S. equity funds receive big inflows as investors downgrade Omicron impact -Lipper – Reuters, 12/31/2021

  • U.S. equity funds received robust inflows for a second week in the seven days to Dec. 29 as investors welcomed signs that the Omicron coronavirus variant won’t bring a big setback to the economy.
  • According to Refinitiv Lipper data, U.S. equity funds lured net purchases of $19.43 billion, compared with their average weekly inflow of $2.3 billion, received this year.
  • U.S. growth and value funds both posted a second straight week of inflows with net purchases of $7.69 billion and $2.36 billion respectively.
  • Among sector funds, financials and real estate funds drew inflows of $1.2 billion and $785 million respectively, although tech and consumer staples funds witnessed outflows of $592 million and $413 million respectively.
  • U.S. bond funds secured inflows of $6.31 billion, their biggest weekly inflow in seven weeks.

Airlines Cancel More Than 1,300 Flights – Wall Street Journal, 12/31/2021

  • The coronavirus surge continued to disrupt U.S. air travel as airlines canceled hundreds of flights Thursday, while the Federal Aviation Administration warned of possible delays because of the agency’s own Covid-related staffing challenges.
  • More than 1,300 flights in the U.S. had been scrubbed by late Thursday, according to aviation data tracker FlightAware, with about half as many already canceled for Friday and Saturday each. The tally included domestic flights and those into and out of the U.S.
  • The FAA on Thursday said its air-traffic control staffing may also come under pressure, as an increasing number of the agency’s employees test positive for Covid-19 along with the rest of the U.S. population.
  • The FAA’s warning came after several airlines scaled back their flight plans for similar reasons.
  • JetBlue Airways, which has moved to trim its schedule through mid-January due to increasing numbers of crews calling in sick, had canceled 177 flights Thursday, or 17% of the carrier’s schedule for the day, as of the evening, according to FlightAware.
  • United Airlines Holdings canceled 203 flights, or 9% of its mainline schedule on Thursday, according to FlightAware. A spokesman for the Chicago-based carrier said those cancellations were due to a mix of Covid-related staffing issues and weather.
  • Delta Air Lines said it expected to cancel about 250, or 6%, of its mainline and regional flights scheduled for Thursday.

India’s antitrust body orders probe into Apple over alleged abuse of app market – Reuters, 12/31/2021

  • India’s competition watchdog on Friday ordered an investigation into Apple’s business practices in the country, saying it was of the initial view that the iPhone maker had violated certain antitrust laws.
  • The order from the Competition Commission of India (CCI) comes after a non-profit group alleged this year that Apple was abusing its dominant position in the apps market by forcing developers to use its proprietary in-app purchase system.
  • The complainant, “Together We Fight Society”, argued that Apple’s imposition of a 30% in-app fee for distribution of paid digital content and other restrictions hurts competition by raising costs for app developers and customers, while also acting as a barrier to market entry.
  • The CCI said Apple’s restrictions prima facie result in denial of market access for potential app developers and distributors.
  • The CCI ordered its investigations unit to complete the investigation and submit a report within 60 days of the order. Typically such investigations go on for several months.

US ECONOMY & POLITICS

Beijing Fell Short on Trade Deal Promises, Creating Dilemma for Biden – Wall Street Journal, 12/31/2021

  • Beijing’s commitment to step up purchases of U.S. goods and services under a 2020 trade pact expires Friday with China expected to miss its targets by a wide margin, creating a dilemma for the Biden administration as it calibrates a response.
  • The White House could potentially reinstate certain tariffs that were cut as part of the trade deal, but that could backfire if China cut back U.S. purchases or took measures against American companies doing business there.
  • Trade analysts say it’s unlikely President Biden would escalate tensions with China as he seeks to tame inflation and advance his domestic agenda. But they also point out that President Biden has yet to articulate a clear strategy for dealing with Beijing.
  • A spokesman for the Chinese embassy in Washington said China’s purchases of U.S. goods were hindered by the economic downturn triggered by the Covid-19 pandemic in 2020.

Biden, Putin Warn of Danger to Relations if Crisis Over Ukraine Escalates – Wall Street Journal, 12/31/2021

  • President Biden and Russian President Vladimir Putin warned each other of the potential for a dangerous downturn in relations if the current crisis over Ukraine further escalates, but kept a pathway open for diplomacy.
  • In a 50-minute conference call Thursday, Mr. Biden renewed a warning to Mr. Putin that Russia would face punishing economic sanctions if Moscow turned away from diplomacy and attacked Ukraine, a senior U.S. official said.
  • Mr. Putin countered that such action would lead to a dangerous rupture in ties between the two countries, a Putin foreign-policy aide said.
  • Since the fall, Mr. Putin has ordered troops to mass near Ukraine in what U.S. and European officials say could be a prelude to an invasion.
  • In doing so, Mr. Putin is trying to force the U.S. and its allies in the North Atlantic Treaty Organization to address Moscow’s objections to the military alliance’s ties with Ukraine, Georgia and other former Soviet states, the current and former officials said.

Fed Rate-Setting Panel Gets New Members in 2022 Amid Rate-Rise Expectations – Wall Street Journal, 12/31/2021

  • Federal Reserve regional bank presidents who gain votes in the new year on the central bank’s interest-rate-setting committee are likely to strongly support raising borrowing costs to try to combat high inflation.
  • The leaders of the Fed’s Kansas City, St. Louis, Cleveland and Boston reserve banks will become voters in 2022 on the Federal Open Market Committee, under the panel’s annual rotation system.
  • Giving up voting slots will be the chiefs of the Atlanta, Chicago, San Francisco and Richmond, Va., Fed banks.
  • The shift is unlikely to significantly alter the course of policy, coming after all Fed officials signaled at their Dec. 15 meeting they are expecting to raise interest rates in 2022.
  • But the changes will draw more public attention to some of the Fed’s so-called hawks, those officials who tend to favor a more restrictive and less stimulative policy stance than their colleagues.

EUROPE & WORLD

U.S. Restrictions Push Huawei’s Revenue Down by Nearly a Third – Wall Street Journal, 12/31/2021

  • Huawei Technologies said revenue dropped by nearly a third in 2021, as the effects of U.S. export restrictions hammered the Chinese tech giant’s main business lines.
  • Huawei’s revenue fell 29% to 634 billion yuan, or about $99 billion, for the year, the company said, an unusual decline in full-year revenue for the once booming technology firm.
  • Huawei disclosed the decline in revenue in a year-end letter to employees from its chairman, Guo Ping. In the letter, Mr. Guo said the company’s efforts to reshape its business following U.S. sanctions were on track but that Huawei would face another challenging year.
  • The results were in line with Huawei’s forecasts, Mr. Guo said. Huawei executives had previously warned of a likely drop in revenue for the year.

China’s Manufacturing Sector Shows Signs of Strength – Wall Street Journal, 12/31/2021

  • China’s manufacturing and service sectors showed unexpected signs of recovery to close out the year, according to a pair of official gauges released Friday, as Beijing moved to arrest a downward spiral triggered by a real-estate slump and coronavirus outbreaks.
  • China’s official manufacturing purchasing managers index rose to 50.3 in December, up from November’s 50.1, the National Bureau of Statistics reported Friday.
  • However, a subindex of factory production weakened to 51.4 in December, lower than November’s reading of 52, as production in the textiles, oil and coal industries each languished below the 50 mark, according to the official data.
  • A subindex tracking total new orders rose to 49.7 in December, higher than 49.4 in November but still in contractionary territory. The subindex measuring new export orders, however, weakened to 48.1 in December from 48.5 the previous month—the eighth consecutive month that this indicator has contracted.
  • China’s official nonmanufacturing PMI, which includes both services and construction activity, rose to 52.7 in December, compared with 52.3 the previous month, the statistics bureau said separately on Friday.
  • The subindex measuring services activity rose to 52 this month, up from 51.1 in November, as airlines, restaurants and entertainment venues shook off November’s coronavirus shutdowns.
  • The subindex measuring construction activity declined to 56.3, compared with November’s 59.1, as construction was dampened by unseasonably cold weather.

Thousands message late Chinese COVID whistleblower doctor 2 years on – Reuters, 12/30/2021

  • Thousands of people left messages on the social media account of the late Chinese COVID-19 whistleblower Li Wenliang on the anniversary of the day he learned of possible pneumonia-causing virus cases in Wuhan and shared the information with fellow doctors.
  • On Dec. 30, 2019, Li, an ophthalmologist at a hospital in Wuhan where the Sars-CoV-2 virus outbreak was first detected, saw a medical report showing potential SARS coronavirus cases were confirmed in the city, he wrote in a post on his Weibo account on Jan. 31.
  • In early January, after the information on “SARS cases” was shared in a WeChat group, Li was reprimanded by the local police, according to the same Weibo post.
  • On Jan. 12 he went to hospital, infected with the virus that causes the COVID-19 disease and died on Feb. 7, 2020.
  • His death led to an outpouring of grief on social media at a time when people were on edge about the virus and authorities were under fire over a perceived lack of transparency and a hardline approach taken to whistleblowers like Li.

Factmonster – TODAY in HISTORY

  • Thomas Edison gave the first public demonstration of an electric incandescent lamp. (1879)
  • The first breath test for drivers, “drunkometer,” was introduced in Indianapolis. (1938)
  • President Truman officially proclaimed the end of hostilities in World War II. (1946)
  • The Marshall Plan expired after distributing more than $12 billion in foreign aid. (1961)
  • The al-Fatah guerrillas of Yasser Arafat launched their first terrorist raid on Israel. (1964)
  • Robert Mugabe sworn in as Zimbabwe’s president. (1987)

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