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Stock Futures Soars, Bitcoin Falls


28 December 2021 Written by Naeem Aslam  AvaTrade Chief Market Analyst Naeem Aslam

Futures in the United States and in Europe are up after bulls reclaimed control of the major stock market indices following the Christmas holidays, implying that a Santa Claus rally will continue. Historically, stock market indices have surged during the last five days of the year and the first two days of January, which is known as the Santa Claus rally. Various studies have shown that the Omicron variant is much less severe than its Delta counterpart, and cases of the new strain are less likely to require hospitalisation. This update has been interpreted by the market as an indication that the Omicron variant will likely not impede economic growth in the coming months, which is a positive for global financial markets.

In yesterday’s session, the Dow Jones Industrial Average jumped 0.98%, and the S & P 500 index climbed 1.38%. The Nasdaq, the tech-savvy index, rose 1.39%, and the Russell 2000, the small-cap index, hopped 0.89%.

Stock Market

The mildness of cases from the new strain has consoled stock traders into believing that the Omicron variant will likely not drag down the global economic recovery in coming months. As a result, prices of stocks more positively linked to economic reopening surged, which is clear from the price action of energy stocks in particular. As the demand outlook for oil became positive, oil prices surged, supporting the rise in stock prices of oil companies as well. The share prices of Devon Energy and APA Corporation jumped nearly 6.10% and 7.30%, respectively. The oil sector is on track to become the S&P 500’s best performing sector in 2021. Similarly, stock prices of technology companies also rose in yesterday’s session. Nvidia and AMD, major chip manufacturing companies, performed relatively better, soaring 4.40% and 5.60%, respectively.

On the other hand, due to an uptick in travel restrictions imposed by various nations, the stock prices of travel-associated companies have taken a beating. Stocks of airline companies fell after various flights were cancelled amid the Christmas holidays. In addition to the COVID-19 related issues, airline companies also faced a shortage of employees at a time when they were working hard to ramp up flight schedules in order to fully capitalise on the rise in demand. Because of these problems, American Airlines, Delta Airlines, and United Airlines all closed in the red. Similarly, stock prices of cruise companies like Royal Caribbean and Norwegian Cruise Line shed blood in Monday’s session.

Despite the Omicron-related issues, Americans were not shy about enjoying their Christmas holidays to the fullest. Sales during the holidays climbed at the fastest speed in the last 17 years, rising nearly 8.50%. This is a remarkable achievement as retailers were able to reach this number despite facing unprecedented supply chain constraints and higher product prices. In addition to this, the rise in controls to curb the spread of Omicron made it difficult for consumers to shop over the last few weeks. Having said that, Americans should not get too complacent, as warned by Doctor Fauci as Covid- The 19 cases are likely to rise in the short term, and the best way to protect ourselves is to get booster shots.

Bitcoin

Bitcoin has struggled to stay above the critical $50,000 mark and is currently trading at around $49,000. Despite the recent selloff, the outlook for cryptocurrencies remains positive as more institutional investors get in on the action. When names like Elon Musk, founder of Tesla, and Tim Cook, CEO of Apple, the powerhouses of innovation, show increased interest in the digital sector, you know it’s time to pay attention.

It is no secret that Elon Musk has been extremely bullish on the use cases of cryptocurrencies, and he has used social media to express his enthusiasm for the sector. On the other hand, Tim Cook, has stated that cryptocurrencies are part of his personal investment portfolio and that he has been actively researching and reading up on the sector.

He thinks it’s a no-brainer to use cryptocurrencies to diversify one’s portfolio. He did, however, state that his views on cryptocurrencies are his own and do not necessarily reflect Apple’s position on the subject. He went on to say that Apple’s investing in digital coins is unrealistic, not because the crypto space is unpromising, but because he believes that Apple stockholders do not buy Apple stock to gain exposure to Bitcoin.

Oil

Oil markets have been showing strength over the last few days, if not weeks, mainly because of diminishing fears that the Omicron variant will hinder economic growth and hence dent demand for oil in the coming months. Sajid Javid, health minister of the United Kingdom, stated that England is not looking to add further COVID-19 related restrictions in 2021 and that government officials are closely monitoring the situation to understand whether the country’s health sector can cope with the higher number of cases.

Moving onwards, the most important event for oil markets is going to be OPEC+’s meeting scheduled to be held on January 4, 2021, in which the cartel will make a decision to move on with its current plan or raise oil output to satisfy the surge in oil demand.

Gold

Currently, gold prices have been floating around $1,810 while the dollar index and treasury yields, major drivers for the precious metal, remain broadly unchanged. However, the future outlook for gold remains bleak as reduced concerns related to the Omicron variant would mean the Federal Reserve sticking to its decision to speed up its tapering process and execute interest rate hikes as soon as March 2022. When interest rates rise, the opportunity cost of holding the yellow metal also rises, eventually pushing its price down.

Asian markets

Technology stocks listed on the Hang Seng index have been struggling to gain momentum after Didi barred its workers from selling their shares for an unspecified period of time. At the same time, uncertainty related to Chinese companies’ going overseas for an IPO has also dragged market sentiment down.

As of 12:39 a.m. EST, the Nikkei surged 1.08% while the Shanghai Composite Index rose 0.05%. The ASX 200 index jumped 0.44%, and Seoul’s Kospi climbed 0.19%. The Hang Seng index, in Hong Kong, was flat.

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