Dow snaps 4-day win streak as investors focus on hopes for recovery, political transition - Trade Stocks

Dow snaps 4-day win streak as investors focus on hopes for recovery, political transition

By Mon, Jan 11, 2021

Stock indexes booked modest losses Monday, backing off from Friday’s records, as investors remained optimistic about the prospects for the incoming Biden administration to oversee an economic recovery.

Also in focus were surging COVID-19 cases and potential political fallout from last week’s violent mob attack on Capitol Hill.

How did major benchmarks perform?
  • The Dow Jones Industrial Average DJIA, -0.29% fell 89.28 points, or 0.3%, to finish at 31,008.69, after declining more than 300 points at its session low.
  • The S&P 500 SPX, -0.66% slumped 25.07 points, or 0.7%, closing at 3,799.61.
  • The Nasdaq Composite COMP, -1.25% erased 165.54 points, or 1.3%, ending at 13,036.43.

Equities ended last week in rally mode, with the Dow, S&P 500 SPX, -0.66% and Nasdaq Composite each logging a record close on Friday.

What drove the market?

Investors focused on the potential for the incoming Biden administration to ramp up vaccinations and to steady the U.S. economy, as the clock winds down on President Trump’s tumultuous one-term in the White House. President-elect Joe Biden will be inaugurated on Jan. 20.

“In general, it’s been a strong start to the year as people have stayed hopeful that there will be some progress with distributing the vaccine,” said John Carey, portfolio manager and director of equity income, US. at Amundi Pioneer, while pointing to efforts by Johnson & Johnson JNJ, -0.42% and other drug developers to produce effective COVID-19 vaccines that add to the U.S. arsenal.

“There also is a little bit of optimism for the proposed stimulus plans from the new administration,” Carey told MarketWatch. “But on balance, it is a hopeful time, even while investors are aware of the continued presence of the virus and its risks.”

Meanwhile, House Democrats moved to introduce impeachment articles against President Trump on Monday, on the grounds that he helped incite last week’s riot in Washington, D.C., which saw a mob of Trump supporters attack the Capitol, resulting in at least five deaths.

The FBI warned Monday of plans for armed protests in all 50 state capitals and in Washington, D.C., in the days leading up to Biden’s inauguration. Biden said he’s unafraid of taking the oath of office outside of the Capitol, with plans under way to deploy up to 15,000 National Guard troops in D.C. through this year’s significantly scaled-down inauguration due to the coronavirus pandemic.

Last week’s stock market rise to records, despite the turmoil, was attributed to expectations that Biden’s incoming administration would be able to push through another round of aid with a Democratic-controlled Congress.

See: Don’t fret, investors. Stock market exuberance is here to stay, Credit Suisse says. Here’s why

Sonal Desai, CIO of Franklin Templeton Fixed Income, said to expect a Democratic-led Senate to approve a larger fiscal stimulus that tilts toward the higher end of a $2 trillion-$3 trillion range, with plans for spending on infrastructure upgrades, as part of her 2021 outlook.

Market participants, thus far, played down the threat of political headwinds weighing on stock values, arguing that concerns over last week’s climb in Treasury yields, tied to concerns the Federal Reserve could move later this year to pull back monetary stimulus, were the bigger threat to a continued equity rally.

“What cannot be ignored is the rise in U.S. government bond yields,” Hussein Sayed, chief market strategist at FXTM said, with the 10-year Treasury note yield TMUBMUSD10Y, 1.144% last week logging its largest weekly rise since June. The move in yields could prompt investors to rethink 2021 strategies, “especially if we see a bigger upside move in the weeks and months ahead,” he wrote. Yields, which move in the opposite direction of bond prices, edged higher on Monday.

But others argued the speed of the recent Treasury yield rise has been orderly, and was unlikely to weigh on investor appetite for stocks, given the rise in bond yields reflected more optimistic growth and inflation expectations.

“As long as the move isn’t unruly, risk assets can continue to rally, especially as the recent rally is based on vaccine rollouts and fiscal stimulus expectation,” said Esty Dwek, head of global market strategy at Natixis Investment Managers.

Check out: Why one investor says surging U.S. Treasury bond yields amid political turmoil is far from hurting stocks

Calls for Trump’s impeachment, for a second time, after Wednesday’s riot was viewed as a possible impediment to focusing on other legislation considered more instrumental to supporting the economy, some strategists and analysts said.

But Andrew Slimmon, head of Morgan Stanley Investment Management’s applied equity advisers team, said the second year of a new bull market, on its own, can be “as volatile as ever.” In a note, Slimmon said he expects people to spend more money in 2021, which could prompt the Fed to “decide that there is no longer a need for massive liquidity injections. This may cause them to raise interest rates, or at least float the possibility of policy change.”

Which stocks were in focus?
Which assets were on the move?

William Watts contributed reporting

About the Author

Trade Stocks was specifically created as a resource that traders and investors can rely on for accurate and timely financial news and insights. Our team of industry experts brings you the into you need when you need it. That’s why hundreds of thousands of traders and investors trust us to provide them with the financial education, support, and resources that they can count on to help them move closer to their financial goals.