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The S&P/ASX 200 climbed to within 13 points of a record before turning lower as the Santa rally lost momentum.  

The benchmark hit 7620.2 in early trade, then faded to a mid-session deficit of 21 points or 0.27 per cent. The broader All Ordinaries logged a second straight all-time high and was lately off 22 points or 0.28 per cent.  

Macquarie Group set a new record. Afterpay led a sharp retreat in buy now, pay later companies.

What’s driving the market

Stocks briefly defied soft leads before fading towards what would be only their second loss in nine sessions. Today marks the unofficial end of the “Santa rally” period, which describes a seasonal tendency towards gains across the last week of December and the first two sessions of the new year.

The Dow kept the party going overnight, rising 0.59 per cent to a new record. The broader S&P 500 eased 0.06 per cent.

The tech-heavy Nasdaq Composite fell 1.33 per cent as rising rates fuelled a rotation from borrowers to lenders. US market rates have risen more than 15 basis points in two sessions. Banks and other lenders rose. Stocks that depend on borrowing to fund growth declined.

“The so-called Santa Claus Rally officially came to an end in the US stock market on the second trading day of 2022 despite new year optimism in some stocks,” Kalkine Group CEO Kunal Sawhney said.

“Investors were seen to be betting on the stocks that could harness the benefits of a robust economy while rotating out of technology stocks.

“Despite the recent surge in daily virus cases to over 1 million in the US, investors seem hopeful of the economy overcoming the looming Omicron threat. Meanwhile, a continuing increase in bond yields has prompted investors to move out of tech stocks with high valuations.”

A similar dynamic played out on the ASX after the yield on government debt hit a one-month high. The yield on ten-year Australian government bonds firmed three basis points this morning. Macquarie, asset managers and the big four high-street lenders advanced. Tech stocks and bond proxies declined.

Going up

Macquarie Group pushed further into record territory, rising 2.27 per cent. CBA gained 0.39 per cent, NAB 0.51 per cent and Westpac 0.69 per cent. ANZ touched a six-week high before fading 0.21 per cent.

Asset managers Platinum and Magellan firmed 1.44 and 0.42 per cent, respectively.

A six-week high in crude oil kept the energy majors on the rise. Santos gained 1.82 per cent. Woodside Petroleum added 0.26 per cent.

“Oil prices rallied after OPEC+ decided to stick to its proposed increase in oil output from February 2022 as virus cases continue to soar,” Kalkine’s Sawhney said. “It seems OPEC+ is hopeful of a quick recovery in global energy demand as soon as virus fears subside,” he added.

Tentative new-year gains in iron ore lifted the big three domestic producers. Fortescue Metals put on 0.83 per cent, BHP 0.71 per cent and Rio Tinto 0.69 per cent.

A contract win in Indonesia helped lift CIMIC 1.06 per cent. The construction company’s Asian subsidiary was selected to build a data centre campus in Jakarta. The contract will generate revenue of roughly $103 million.

Going down

Biotechs and other growth stocks retreated in the face of rising rates. Clinuvel Pharmaceuticals shed 5.91 per cent, Pro Medicus 7.67 per cent and Imugene 5.29 per cent.

BNPL – another sector where future earnings are subject to downward revision under higher rates – also came under pressure. Afterpay declined 3.37 per cent, Z1p Co 4.5 per cent and Splitit 1.75 per cent.

In the tech space, Technology One dropped 4.02 per cent, Appen 3.14 per cent and Xero 3.56 per cent.

Premier Investments eased 4.41 per cent as its shares went ex-dividend.

Other markets

Asian markets were mixed. The Asia Dow and Japan’s Nikkei both inched up 0.06 per cent. Hong Kong’s Hang Seng shed 0.41 per cent. China’s Shanghai Composite fell 0.51 per cent.

US futures softened. S&P 500 futures declined nine points or 0.18 per cent. Dow futures lost 59 points or 0.16 per cent.

Oil added to its overnight six-week high. Brent crude edged up five US cents or 0.06 per cent to US$80.05 a barrel.

Gold was flat at US$1,814.60 an ounce.

The dollar held steady at 72.4 US cents.

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