Equities took a step back Monday as investors reacted to weekend omicron developments and looked ahead to this week’s Federal Reserve meeting.
While much of last week was spent cheering data indicating that omicron might be a milder version of the COVID coronavirus, the strain still might be able to hamper economic activity. Several European countries enacted restrictions to battle the omicron variant, including Norway and the U.K. – the latter of which announced its first death from omicron and said it’s expected to be the country’s dominant strain within days.
And in the U.S., average daily new COVID cases have eclipsed 100,000 for the first time in two months.
Meanwhile, some investors have their eyes trained on Wednesday, when the Federal Open Market Committee will announce its latest policy decisions. While most expect the benchmark Fed funds rate to stand pat, some believe the central bank will accelerate the timeline for tapering its $120 billion-per-month asset-purchasing program.
Michael Reinking, senior market strategist for the New York Stock Exchange, also pointed investors in the direction of the New York Fed’s survey of Consumer Expectations. Near-term (one-year) inflation expectations increased to 6.0% in November from 5.7% in October, but three-year expectations actually declined to 4.0% from 4.2%, the first time that had happened since June.
“This is something the Fed will continue to watch as they continue to highlight that they want inflation expectations anchored around 2%,” Reinking says. “While this is clearly above that level it is positive to see this tick lower though a single data point a trend does not make (spoken in my best Yoda impersonation).”
Every major index declined: The Dow was off 0.9% to 35,650, the S&P 500 declined 0.9% to 4,668 and the Nasdaq finished 1.4% lower to 15,413.
Other news in the stock market today:
- The small-cap Russell 2000 slumped 1.4% to 2,180.
- U.S. crude oil futures slipped 0.5% to settle at $71.29 per barrel.
- Gold futures ticked 0.2% higher to finish at $1,788.30 an ounce.
- Bitcoin tumbled over the weekend and into Monday, off 3.6% from Friday afternoon to $46,688.45. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
- Dollar Tree (DLTR, -0.5%) was in focus after the discount retailer yesterday replied to Mantle Ridge over its attempt last week to replace DLTR’s entire board, calling the effort “unwarrantedly aggressive and hostile.” The activist investor, which unveiled a 5.7% stake in Dollar Tree in mid-November, is also pushing for former Dollar General (DG) Chairman Richard Dreiling to take over the role as executive chairman of the board. UBS analyst Michael Lasser (Buy) called the back and forth between the two parties “typical of the process,” and that Dollar Tree’s response over the weekend “is probably a message that the board remains confident in the company’s path forward.” Additionally, Lasser believes “the clear path for this stock is higher,” and DLTR “is one of the best ideas in the sector heading into 2022.”
- Harley-Davidson (HOG) jumped 4.7% today after the motorcycle maker said its electric bike unit – LiveWire – is set to go public via a $1.77 billion merger deal with special purpose acquisition company (SPAC) AEA-Bridges Impact (IMPX, +3.6%). As part of the deal, which is expected to close in the second half of next year, HOG will retain a 74% stake in LiveWire. The new company will list on the New York Stock Exchange under the ticker “LVW.”
- Lululemon Athletica (LULU, -1.4%) declined despite Argus Research analyst John Staszak reiterating a Buy rating on LULU shares.
The Best Dow Jones Stocks
It’s another setback for the 139-year-old industrial average, which began the year 2021 with spring in its step. Despite that hot start through May of this year, the Dow, up 16.5% for the year-to-date, now trails both the S&P 500 (+24.3%) and Nasdaq (19.6%).
Wall Street spent most of the day huddling into defensive sectors such as real estate (+1.3%), consumer staples (+1.3%) and utilities (+1.2%), and bailing out of cyclical DJIA components such as Boeing (BA, -3.7%), Home Depot (HD, -2.5%) and Dow (DOW, -2.5%).
It’s yet another reminder that while many investors consider the industrial average’s blue chips to be a source of relative safety, they can ebb and flow just like the rest of the market – and some can absorb some mighty short-term bursts of pain.
If you find yourself looking to the Dow for new investment opportunities, you’ll need to be tactical, sussing out which of the index’s components are at their most appealing right now.
With 2022 nearing, we’ve looked at each of the Dow’s 30 blue chips to determine which of its stocks analysts are hot on for the year ahead – and which ones they’re turning a cold shoulder to.