Wall Street Breakfast: What Moved Markets

- The major averages traded lower for the last session of 2021 after some late selling action, but closed out the year with strong gains. The S&P 500 Index fell 0.3% and ended December about 4.5% higher, the third-best month of the year and best December since 2010. For the year, the S&P 500 Index was up about 27% to outpace the Dow and the Nasdaq by a wide margin. The S&P 500 Index set 70 all-time highs during the year, which is the most in a single year since the 77 that was carved out in 1954. In the bond market, the 10-year Treasury yield ended a shortened session flat at 1.51%, just below the 50-day moving average of 1.52%.

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Top News Shutterstock The major averages traded lower for the last session of 2021 after some late selling action, but closed out the year with strong gains. The S&P 500 Index fell 0.3% and ended December about 4.5% higher, the third-best month of the year and best December since 2010. For the year, the S&P 500 Index was up about 27% to outpace the Dow and the Nasdaq by a wide margin. The S&P 500 Index set 70 all-time highs during the year, which is the most in a single year since the 77 that was carved out in 1954. In the bond market, the 10-year Treasury yield ended a shortened session flat at 1.51%, just below the 50-day moving average of 1.52%. Media 'Spider-Man' surpasses $1B Many films at the box office have bombed since the pandemic (see West Side Story and The Matrix Resurrections as recent examples), but one movie has overturned that sentiment despite a fifth wave of COVID-19. Spider-Man: No Way Home reached $1.05B at the global box office over Christmas weekend, making it the first film to reach the benchmark since 2019. No Way Home was also the third-fastest film ever to cross $1B (in just 12 days) and did so without the benefit of its release in China. Backdrop: No Way Home was another co-production between Sony (NYSE:SONY) and Disney (NYSE:DIS) after the two brokered a deal in 2015 for Spider-Man to appear in Marvel's cinematic universe. The partnership also saw Marvel getting involved in Spider-Man's solo projects, which were financed by Sony, and the agreement was renegotiated in 2019 to split production costs and box office receipts. Tom Holland, who plays the newest iteration of Peter Parker, has appeared in six Marvel Cinematic Universe films, including three solo features. "The partnership between these two Hollywood entities is clearly one of great benefit to both," said BoxOffice.com chief analyst Shawn Robbins. Putting it in perspective: As of the final week of 2021, the North American box office had brought in $4.3B (with over 10% of that, or $467M, from Spider-Man: No Way Home). Before the pandemic, a typical year at the box office exceeded $11B. (15 comments)       Aviation Travel chaos Tens of thousands of holiday travelers had their plans upended over Christmas weekend as flight cancellations disrupted one of the busiest travel seasons of the year. A total of 957 Christmas Day flights, including domestic flights and those into or out of the country, were canceled, up from 690 on Christmas Eve. Another 1,318 flights were called off on Sunday, according to FlightAware.com, while cruise ships from Royal Caribbean (NYSE:RCL) and Carnival (NYSE:CCL) had to ditch stops due to outbreaks on board. Quote: "The nationwide spike in Omicron cases this week has had a direct impact on our flight crews and the people who run our operation," said Maddie King, spokesperson at United Airlines (NASDAQ:UAL). "We are working hard to rebook as many people as possible and get them on their way for the holidays." Other carriers like Delta (NYSE:DAL) and JetBlue (NASDAQ:JBLU) also blamed staffing shortages, with "COVID-related sick calls" resulting in quarantines of pilots and crew. Thousands of more daily flights were cancelled throughout the week, with airlines working to reroute flights and substitute some planes. Severe winter weather didn't help the situation and only added to the chaos. Go deeper: "Lower travel, equaling lower economic activity in the U.S., equals lower WTI, the U.S. oil benchmark," noted OANDA analyst Jeffrey Halley. Crude futures (CL1:COM) and airline shares fell early in the week on the news, with surging COVID-19 cases across the country. The average number of new U.S. coronavirus infections even rose to nearly half a million a day and that figure is likely to undercount the true number. (86 comments)       Covid Changing the rules The Centers for Disease Control and Prevention updated recommendations for COVID-19 control, shortening isolation restrictions from 10 to five days for all Americans who test positive for the virus. That's as long as they are asymptomatic, though they should still wear a mask around others for a further five days. The newly-issued guidance is in line with the growing evidence suggesting that people infected with COVID-19 are most infectious 1–2 days before and 2–3 days after the onset of symptoms. In addition: The CDC has endorsed a shorter quarantine period for the close contacts exposed to the virus. "For people who are unvaccinated or are more than six months out from their second mRNA dose [from Pfizer (PFE) or Moderna (MRNA)] - or more than 2 months after the J&J (JNJ) vaccine - and not yet boosted, CDC now recommends quarantine for 5 days followed by strict mask use for an additional 5 days. Individuals who have received their booster shot do not need to quarantine following an exposure, but should wear a mask for 10 days after the exposure."

The caseload and restrictions are causing huge disruptions to the aviation and hospitality industries, in particular, triggering new pandemic-management ideas. Delta even previously asked the CDC to halve 10-day quarantine recommendations for vaccinated staff, saying it "may significantly impact our workforce and operations." Thousands of flights were scrapped this week, according to Flightaware.com, adding to the 2,300 which were canceled over the Christmas weekend.

Quote: "When you have a rapidly spreading infection that's going to have tens of millions of Americans infected in the next couple of months, 10 days is enormously disruptive," noted Dr. Ashish Jha, Dean at the Brown University School of Public Health. "This policy is safe, it doesn't put people at risk. We don't think most people are contagious after five days." (136 comments)

     

Analysis

Tough year

While U.S. stocks ended 2021 on a high note, with the S&P 500 finishing up 27%, Cathie Wood missed out on the rally. Her flagship ARK Innovation ETF (ARKK) fell 22% this year and for its worst annual performance since its inception in October 2014. It comes in stark contrast to last year's rally of almost 150% as she continues to reshuffle her ETFs (almost daily) to combat the latest market headwinds.

Commentary: "Everyone is talking about the Santa rally powering markets, but meanwhile ARKK is still going lower," said Mark Taylor, sales trader at Mirabaud. "Cathie Wood remains firmly in the Grinch camp, and the outflows are starting to show."

At the start of the year, Wood forecast a five-year compounded annual growth rate of 20%, but things didn't quite turn out that way. With gains slowly sliding away, the aggressive active stock picker is doubling down on her "disruptive innovation" strategies, predicting that ARKK could now deliver a five-year compounded annual growth rate of up to 40%. The kicker came on Monday, when her team sold a large portion of their holdings - like Palantir (PLTR) and Robinhood (HOOD) - for "purposes of raising cash for the 2021 annual ETF distribution."

Go big or go home? While it could be a one-off year, her methods could prove risky if she doesn't diversify to other areas and sectors. Wood usually starts by figuring out the total addressable market of a "disruptive" technology, such as artificial intelligence, crypto, DNA sequencing, energy storage and robotics, and then looks for companies that can benefit from the fast-growing area. However, when prices begin frothing for companies that are making little or no profit (i.e. Spotify (SPOT), Teladoc (TDOC) and Twilio (TWLO)), or P/E ratios are off the charts (i.e. Block (SQ), Roku (ROKU) and Tesla (TSLA)), the market may begin questioning their valuations. (261 comments)

     

In case you missed it, Wall Street Breakfast published two longer editions this week, recapping the hottest headlines from 2021, as well as what to expect in 2022.

For some more weekend reading, see Wall Street Breakfast: What A Year! and Wall Street Breakfast: What To Watch In 2022.

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