Hopes of a ‘Santa Rally’ in US stocks fade as megacaps struggle

U.S. stocks were battling to keep hopes of a year-end Santa Claus rally alive as investor optimism about China’s reopening plans was countered by concerns about the specific impact on some of the most large companies in the market.

Beijing’s decision to scrap incoming quarantine requirements gave stocks a general boost on Tuesday, particularly in China, as investors eyed the world’s second-largest economy to rebuild strained supply chains and trade ties for nearly three years of pandemic isolation.

But individual stocks, including Tesla and Apple, have been hit by concerns about disruptions to their manufacturing operations in China amid rising numbers of Covid-19 cases.

By mid-afternoon, the S&P 500 had halved its early losses to 0.3% lower while the tech-heavy Nasdaq Composite was down 1.2%.

In the United States, a so-called Santa Claus rally points to gains in the last five trading days of a year and the first two of the new year.

Apple shares slid 1.9% to below $130, hitting the lowest point since June 2021.

Tesla was Tuesday’s second-largest loser by percentage, down 8%. Reuters reported that in China, the electric vehicle maker was extending a reduced production schedule from this month to January.

The falls took Tesla’s December losses to 42%, its worst month in at least 10 years, as investors also worry about a potential slowdown in sales and Chief Executive Elon Musk’s distraction from managing also Twitter.

Southwest Airlines was another big fall, dropping 5.8%, as the budget carrier grappled with continued disruptions from extreme cold that hit large swaths of the United States over the weekend. -end of vacation.

The tech gloom was countered by winners among companies likely to benefit from China’s travel changes, including casino operator Wynn Resorts, which has a large presence in Macau’s gambling hub. It tops the list of S&P 500 winners with a 5% gain.

China’s CSI 300 closed up 1.2% on Tuesday. Most other Asian markets, including Hong Kong and Australia, remained closed.

The subdued performance ends a disastrous year for equities, with the MSCI World Index falling 19% during 2022.

“It will take a small miracle if 2022 is not the weakest year for global equity markets since the 2008 financial crisis,” analysts at Nordic bank SEB said in a note.

This year, global markets have been dominated by the struggle of Western central banks to rein in high inflation through aggressive interest rate hikes. Next year, some of the focus of investors is likely to shift to the impact of China’s rapid dismantling of Covid-era restrictions.

“The bigger story is what’s happening in China,” said Neil Shearing, chief economist at Capital Economics. A long-term impact is likely to be on the dollar as nerves surrounding China have formed a critical support zone this year, he added.

“Typically, when risky assets go up, safe assets like the dollar go down,” Shearing said, warning that “some optimism should be tempered, however, [as] the road will be bumpier than many expect.”

Elsewhere, UK markets were closed for a bank holiday while in Europe the Euro Stoxx 50 index closed 0.4% higher.

Additional reporting by Patrick McGee

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