S&P 500 bounces above 4,580, driven by bullish performance in cyclical names

• The S&P 500 rallied more than 1.0% on Monday, driven by gains in cyclical stocks.
• Growth names have fared comparatively worse, with the Nasdaq up a modest 0.5%.

The S&P 500 has seen a decent bounce this Monday and is currently trading higher growing 1.0% on the session around the 4,580 level as investors continue to buy on the dips in light of the index testing its 21-day moving average at 4,525 In the past week. Economically sensitive “cyclical” stocks outperformed Monday, with the S&P 500 value index rising 1.8%. That compares with a comparatively dismal performance for the US “growth” sector, which was up just 0.1%.

Value stocks were offered higher because traders bet that the US economy would perform better than feared in 2022, as the tone of the Omicron news improved over the weekend. There were more comments from South African health officials noting that Omicron infection appears to be associated with comparatively mild symptoms compared to past variants. Value stocks also fared better, as a surge in US bond yields undermined the appeal of duration-sensitive growth stocks. The valuation of growth stocks is disproportionately based on growth expectations of future earnings rather than present earnings, making valuations more vulnerable to an increase in opportunity cost (i.e., returns of the bonds).

As a result of the divergence above, the Dow has performed solidly, gaining more than 1.5% to regain the 35,000 level, while the Nasdaq 100 is only up around 0.3% and just above 15,700. Stock markets appear poised to remain sensitive to pandemic-related headlines in the run-up to the new year. As infection rates continue to rise in the US to match what has happened in Europe over the past few months, a trend that will likely also be accelerated by the spread of the highly transmissible Omicron-variant, traders should be mindful of the risk of possible sporadic reimpositions of lockdown in the US This presents a downside risk to growth, particularly in the first quarter of 2022.

It will also be worth keeping an eye on macroeconomic data from the US this week. The most interesting data points will be the JOLT job listing for October on Wednesday, weekly jobless claims on Thursday, and consumer price inflation for November and preliminary December consumer confidence data from the University of Michigan. on Friday. The Fed is now in a blackout ahead of the December 15 monetary policy announcement, but members will be on the lookout for inflation data in particular.

Technical levels