Month: January 2021

The three major indexes posted gains on Friday, including new record highs for the S&P 500. This was welcome news for investors following an eventful week, including the congressional confirmation of the presidential electoral vote, the upheaval at the Capitol Building, two Georgia runoff elections for the U.S. Senate, new records set for U.S. coronavirus case counts and hospitalizations.  Stocks benefited as anticipation for the potential for increases in the amount of direct payments to individual taxpayers from $600 to $2,000 through additional stimulus funding proposals favored by the incoming Biden administration.

The S&P 500 closed up 0.55 on Friday, the Dow 0.18 percent, and the Nasdaq 1.03 percent for the day. For the week, the S&P 500 posted a weekly gain of 1.8 percent, the Dow 1.94 percent, and the Nasdaq an impressive 2.4 percent. The Russell 2000 Index ended the day with a loss of 0.25 percent.

SPDR Consumer Discretionary (XLY) rose 4.79 percent thanks to Tesla (TSLA), which popped 19.16 percent on the hope the government will pass favorable policies for electric vehicles. Tesla entered the consumer discretionary sector when it was added to the S&P 500 Index. It came in around 14 percent of the index, but it is already 17.64 percent, behind Amazon’s 21.72 percent as of Thursday. Tesla gained 7.84 percent on Friday.

The most recent market valuation of Tesla is $830 billion, now officially surpassing Facebook’s (FB) market valuation, after an incredible 20-percent increase for 2021 so far, and Tesla moved up into the position of the fifth-largest company included in the S&P 500.

Gold prices experienced their worst daily loss since November on Friday with prices falling 4 percent on the day. Meanwhile, oil prices were up significantly; West Texas Intermediate crude increased 3.8 percent and the international crude oil benchmark (Brent Crude) was up 3.6 percent. SPDR Energy (XLE) climbed 7.63 percent. First Trust ISE Revere Natural Gas (FCG) jumped 10.71 percent.

Bond yields climbed this week. The 10-year Treasury yield rose to 1.11 percent, up from 0.95 percent last week. It’s the first time rates have been this high since the pandemic hit.  This boosted financials, with SPDR Financials (XLF) rising 4.92 percent. Five-year inflation expectations are rising though. This week they crossed 2 percent for the first time since the fourth quarter of 2018.

High-yield bonds benefited from falling credit risk. Invesco Senior loan (BKLN) added 0.94 percent. Long-term government bonds went the other way. iShares 20+ Year Treasury (TLT) slid 3.81 percent. Corporate bonds, which have higher interest rate risk, also fell. iShares iBoxx Investment Grade Corporate Bond (LQD) declined 1.43 percent.

Stocks were sensitive to new reports on the prospect of increases in the coronavirus stimulus package funding in terms of direct payments to individual taxpayers of $2,000. In particular, stocks suffered a slight dip on the Washington Post’s Friday report of Sen. Joe Manchin’s (D-WV) apparent position that he would break with his Democratic colleagues in the Senate and refuse to support additional stimulus funding in the form of increased direct payments to taxpayers. Upon Sen. Manchin’s public clarification of his stance later in the day, stocks likewise reacted favorably that additional direct stimulus payments were still likely.

The outcome of Tuesday’s Georgia runoff elections involving two U.S. Senate seats that have now flipped from Republican to Democrat upended the widely held view that political gridlock would be caused with Republicans controlling the Senate with the Democrats retaining a majority in the House and White House. Some were concerned earlier in the week that investors would react negatively to the changing political reality that more progressive policy initiatives have an increased likelihood of becoming law.

Equities started the week on a down note as investors bid up inflation related assets. The Dow Jones Industrial Average dipped 1.25 percent, the Nasdaq and Russell 2000 Index 1.47 percent and the S&P 500 Index 1.48 percent. Energy was the lone winning sector on the day. SPDR Energy (XLK) increased 0.16 percent. Equities seemed to dip midday as odds of Democrats winning the Senate increased in betting markets. Two runoff elections will take place on Tuesday and pollsters have the races as dead heats or with Democrats in the lead.

Subsectors that benefit from inflation rose on Monday. SPDR S&P Metals & Mining (XME) climbed 0.63 percent, VanEck Rare Earth (REMX) 4.28 percent, Global X Copper Miners (COPX) 4.78 percent, Global X Silver Miners (SIL) 7.85 percent. Inflation sensitive real estate and utilities were the weakest performers. SPDR Real Estate (XLRE) fell 3.23 percent and SPDR Utilities (XLU) dipped 2.52 percent.

SPDR Consumer Discretionary (XLY) was relatively strong yesterday, dipping only 0.85 percent. Newly added Tesla (TSLA) gained 3.42 percent on Monday.

The 10-year Treasury yield was flat on the day and finished where it ended 2020 at 0.92 percent. iShares 20+ Year Treasury (TLT) saw a small gain of 0.14 percent on the day.

The manufacturing PMI rose to 57.1 in December, up from 56.5 in November. The services PMI is out on Tuesday. Analysts expect a dip from 57.5 in November to 57.0 in December as lockdowns dampen optimism in the service sector.

Economists see weekly unemployment claims rising to 815,000 in the week ended January 2, up from 787,000 the week prior. The Bureau of Labor Statistics publishes the December employment report on Friday. Economists predict only 50,000 new jobs, down from 245,000 in November, as lockdowns negatively impact hiring. They forecast wages rose 0.2 percent.

The U.S. Dollar Index rebounded strongly on Monday. It has been in a downtrend since the start of November, but short-term technical indicators show it could be headed for a slight rebound.