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The share market flew to a four-month high after Wall Street ended its first session of 2022 at a record.

The S&P/ASX 200 surged 107 points or 1.44 per cent by mid-session. The rally eclipsed Friday’s 69-point end-of-year profit-taking and lifted the index to a level last seen in late August.  

All 11 sectors advanced, led by energy and mining stocks. Woodside Petroleum, Macquarie Group, Fortescue Metals and Aristocrat Leisure and were the pick of the heavyweights.

What’s driving the market

The mood on financial markets remained bullish as a new year got underway. Both the Dow and S&P 500 logged record closes overnight. The Dow climbed 0.68 per cent. The S&P 500 added 0.64 per cent.

The rallies maintained a recent trend towards positive starts to the year. The S&P 500 has risen in the first week of 11 of the last 13 years, according to Bank of America. Gains have averaged 1.6 per cent.

Markets have also benefitted from a phenomenon known as the “Santa rally“. This bias towards market gains across the holiday period reflects a number of factors including seasonal optimism, the US tax year-end and the absence of many institutional investors. The ASX 200 has risen for seven of the last eight sessions.

“The well-known Santa Claus Rally ends on Tuesday. The good news is stocks look like they’ll be higher during these bullish 7 days,” Ryan Detrick of LPL Financial said. “It is when these days have been down when we need to worry, so that’s one less worry at least.”

CommSec expects share market returns to moderate this year. The broker tips growth of around 5 per cent, less than half last year’s 13 per cent advance. Gains will be tempered by the withdrawal of central bank stimulus and by higher rates in the US and other parts of the world.

“We expect the Australian sharemarket to lift around 5 per cent over 2022,” the broker told clients. “Economic activity (and profits) won’t receive the same boost from fiscal and monetary stimulus as that delivered in 2021.

“Having said that, the government will not be in a rush to remove support, and super-low interest rates will remain over the majority of 2022.”

CommSec expects the economy to grow 5.1 per cent this year. Wage growth is expected to pick up by the September quarter as unemployment falls from 4.6 per cent to 4.1 per cent. The dollar should reach by 78 – 80 US cents by year-end.

Data this morning suggested the housing boom may be losing momentum. The CoreLogic Home Value Index edged up 1 per cent last month, the smallest gain in 11 months. Prices soared 22.1 per cent last year.

Going up

Green energy stocks were the morning’s best performers as investors bet on strengthening demand for battery materials this year. Novonix climbed 9.25 per cent. Lynas Rare Earths put on 8.95 per cent.

Lithium miners continued to break new ground. Pilbara Minerals climbed 6.09 per cent, Allkem (formerly Orocobre) 6.73 per cent and Liontown Resources 5.12 per cent.  

Coal miner Whitehaven surged 7.28 per cent to a two-month high after Indonesia halted coal exports for a month. The world’s largest exporter of thermal coal announced a temporary ban on exports as a shortage threatened to trigger blackouts.

Imugene rallied 7.5 per cent after its experimental cancer treatment passed an early-stage trial. The company hopes to develop therapies to help cancer patients eradicate tumours.

Collins Foods gained 1.12 per cent after taking over the KFC franchise in the Netherlands. The company has ambitions to “substantially grow” the brand.

Energy stocks were lifted by a rise in crude ahead of tonight’s OPEC+ policy meeting. Woodside Petroleum firmed 3.01 per cent, Santos 3.96 per cent and Beach Energy 3.17 per cent.

Banking stocks rallied as long-term lending rates followed US rates to multi-week highs. The yield on ten-year Australian government bonds hit its highest since late November. CBA tacked on 1.36 per cent, ANZ 1.2 per cent, NAB 1.39 per cent and Westpac 1.41 per cent.

Other notable gains at the heavyweight end included Aristocrat Leisure +3.74 per cent, Macquarie Group +2.12 per cent, Fortescue Metals +2.03 per cent and BHP +1.88 per cent.

Going down

Gold miners retreated with the yellow metal as a surging US dollar undercut demand for alternative stores of wealth. St Barbara fell 3.24 per cent, Ramelius 2.55 per cent and Regis 2.05 per cent. Nickel-copper miner Chalice dropped 5.57 per cent.

Rising rates depressed interest in growth stocks. Tech leaders Appen and Altium shed 1.43 and 1.46 per cent, respectively. Z1p Co dipped 2.42 per cent.

Rio Tinto was the only major miner to lose ground, falling 0.8 per cent.

Other markets

Asian markets chased overnight gains on Wall Street. The Asia Dow jumped 1.27 per cent, China’s Shanghai Composite 0.26 per cent, Hong Kong’s Hang Seng 0.54 per cent and Japan’s Nikkei 1.36 per cent.

US futures were flat. S&P 500 futures dipped a point or 0.02 per cent.

Oil continued to improve ahead of a virtual meeting of OPEC+ tonight. Brent crude rallied 42 US cents or 0.5 per cent to US$79.40 a barrel.

Gold rebounded US$3.60 or 0.2 per cent to US$1,803.70 an ounce.

The dollar bounced 0.07 per cent to 72 US cents.

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