Stock futures poised to open near record highs on first trading day of 2022

Yahoo Finance Live's Jared Blikre and Julie Hyman start the first trading day of the new year off by breaking down market and sector action, in addition to discussing top performers, the bond market, inflation, and early forecasts for 2022 crude oil prices.

Video Transcript

JULIE HYMAN: --today. Let's take a look at the top headlines that we're watching. 10 million cases in the past week as we see futures rise on this Monday morning. We've got building on some of the gains that we saw during the holiday week. That means we are likely looking at that Santa Claus rally, which could be a good indicator for the opening month of the year and perhaps the year as well.

10 million cases that I mentioned in the past week. That is a record spread of COVID-19 thanks to omicron, but deaths do remain on the decline. We'll get an update on the latest headlines.

308,000, that's how many cars Tesla delivered in the fourth quarter. Its shares surging more than 7% in premarket trading, building on a more than 50% gain last year.

And 400,000, that's the number of jobs that economists estimate the US economy added last month. We'll get the numbers on Friday, but ahead of it, Deutsche Bank's Matthew Luzzetti will join us with a preview.

But first this morning, we are looking back and looking ahead simultaneously here as we are perched between 2021 and 2022. And as we look ahead, there are really going to be several central themes that we are watching going into this year, and they're pretty much many of the same themes that we were watching in the latter part of last year-- rising inflation, of course. We saw that big rise in particular in the fourth quarter of 2021. It may moderate going into 2022, but we'll be watching for those figures.

Rising interest rates, of course, as the Federal Reserve has telegraphed to us that they'll be tapering the bond buying program and then set to raise rates. As to when exactly they'll do that, opinions differ, but that is going to be something the market is watching closely.

And then maybe a moderation of gains in stocks as well after a 27% gain in the S&P 500 in '21. The average S&P 500 forecast for 2022 stands at just under 5,000. So we'll see what it ends up being when all is said and done.

Jared, you've got the YFi Interactive. You were looking at what we saw last year and as we look ahead to what the new year could bring.

JARED BLIKRE: That's right, and let's take a look at the YFi Interactive. Get a quick check of the futures. Starting the year on a decent note here. We got the Dow, S&P 500, and NASDAQ each up over about-- oh, let's just say it's 1/3 of a percent. Russell 2000 up half a percent.

But let's take a quick look at the year that was. We're going to do a one-year chart. Here, 29%. It was 27% as of the end of last year, but on a rolling basis, 29%. Nice gains, and guess what? Strength tends to beget strength. And if we look at that, you know, just thinking about those three bullet points you were looking at before, Julie. Interest rates, what are we looking for? S&P 500 targets. Not a lot has changed over the last year except I think that the COVID fears have definitely ebbed here.

And looking at the sector action, I think that's going to be revealing as well. So let me just bring this up to a one-year time frame. The biggest performing sector last year, the greatest performer was energy. That's up about 45% followed by real estate and then tech financials and consumer discretionary.

And guess what? If we take a look at what's going on in the premarket, we have-- and let me hit this one more time. There we go. We got consumer discretionary up over 1 and 1/2% followed by financials. So all signaling that we're ready for another year of some gains.

Now, are they going to moderate? You know, I think last year the S&P 500 had been up about-- what was it, 70% from its lows? Quite the incredible run, and so people were saying year two of a bull market. Don't expect too much. And nevertheless, we got some outsized returns.

Could it happen again? It could. That's not the base case because what is a base case? Every year analysts say their year-end target for the S&P 500 is up about 8% to 10% from the prior year. That's kind of the base case, so not expecting a lot of anything different here.

We're going to be chatting about Tesla in a second. Just want to note that that is the biggest outperformer here. But also Alibaba and some of the Chinese stocks, we're going to talk about that too. They're having another rough go of it. You can see Alibaba down 49% over the trailing year. Pinduoduo down 67%, up a little bit in the premarket.

But I think one of the big themes this year is going to be what happens with China? What happens with Chinese shares in ADRs? That's going to be a big one.

Another big one, midterm elections. And guess what, midterm elections? Those are swung by energy prices. High gas prices tend to swing those, and so that's going to be huge in front of mind, as is inflation the entire year.

So, Julie, just kind of putting it all together, I think we've got a number of macro trends that are kind of clearly aligning. A lot of years we begin with a certain amount of murkiness. Last year we didn't even-- we were about to have a new president, so there was a lot of headline risk from that as we know how that played out. But this year I think things are a little bit more clear, which only means that there's a black swan about to hit us in the face.

JULIE HYMAN: Yes, definitely. More room for unexpected surprises for sure, Jared.

I'm glad you brought up China because that is something also that a lot of strategists are talking about, you know, the increased tensions between the two countries. Could a black swan be some kind of confrontation over Taiwan, for example? That's definitely something that some people are seeing as a risk or even just increased regulatory pressure between the two nations. Could we see more delisting of Chinese companies in the US and vice versa? That's something to definitely keep an eye on. So all of that maybe going to be playing out and something to watch this year.

To come back to interest rates for just a moment, I believe we are seeing a little bit of a bump up in yields here this morning, and that's something that is going to be top of mind for traders as well, especially as to how they relate to valuations, to how they relate to margin compression and valuation compression as well when we're talking about companies.

The last I was looking at was some Bloomberg estimates for forward price to earnings on the S&P 500, and we;re talking about, what, 22, 23 there, which is above the historical norm. We've got 1.57% on that 10-year T-note.

Now, it's not 2%, which is what a lot of strategists at the beginning of last year had predicted for the end of 2021. We didn't quite get there, but they're now looking. They've pushed that out to the end of 2022. So we'll see what kind of effect that could have on the economy.

JARED BLIKRE: Yeah, and I'm glad you mentioned the bond market because I was just checking out the five-year T-note yield on the YFi Interactive. On a two-month chart, you can really see the bump up that we're getting here. So seven basis points, that is a pretty big move.

Now, I think some of it just has to be-- just has to do with the fact that we're beginning a new year. There's a lot of end-of-year stuff that happens towards the end, so there might be this flee-- this giant sucking sound out of bonds right now. But nevertheless, five-year T-note yield up to about the highs that we saw from last year, so definitely want to keep an eye on that.

And then here's the 10-year T-note yield. Not quite advancing as much to its prior year's highs the way the five year is, but nevertheless, a big seven-basis-point move right there. And the 30-year, that is up five basis points, so a slight flattening of the curve right here even though the entire yield curve looks like it's moving higher.

All of this, though, should be, in theory, risk on. Value stocks, cyclical stocks typically benefit when we see this structure in the bond market, Julie.

JULIE HYMAN: Yeah, everybody woke up here on the first trading day of the year and remembered that the Fed is going to be raising rates this year I guess.

And just one more note as you were talking about oil prices and the increase. Oil prices just had a pretty incredible 2021, right? And so did energy stocks, which was the best performing group in the S&P 500.

We're going to be talking to Ed Morse of Citigroup in the next hour, and he is really an outlier in that he thinks crude oil prices are going to go down next year and that we are going to see deflation. So, Jared, I'm really looking forward to that discussion because he is definitely in the minority, I think, right now.

JARED BLIKRE: Yes. Yeah, I love contrary opinions. I was just talking with somebody at Mizuho who had a contrary opinion about the growth of the economy. He said we're probably going to roll over in Q1, Q2. I don't think the Fed is going to raise rates at all this year and probably not the next year as well. So that's-- you know, you take those outlying opinions, as long as they're well formed, with a grain of salt.

Just looking at crude oil on the YFi Interactive here, we've had a pretty volatile few months. We have this huge trading range, which is basically let's call it the lower 60s, $62, $63 per barrel all the way up to about $85 per barrel. We're smack dab in the middle. So I would expect with OPEC Plus meeting over the next 24 hours-- and they're also selecting a new secretary general of OPEC. I think there are going to be some headlines that could be market moving out of that, Julie.

JULIE HYMAN: Yeah, and I think Morse's tag-- target, by the way, is at the lower end of that trading range you were just looking at.