Stocks Kick Off 2021 Near Record Highs, Dow Flat Ahead Of Senate Runoffs That Could Jolt Markets

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Topline

Kicking off the first day of trading in 2021, stocks are hanging on to record gains as Wall Street eyes the two Senate runoffs in Georgia on Tuesday that could yield either a fruitful environment for corporations or set the stage for a Democrat-controlled Congress that forces investors to reconsider their portfolios.

Key Facts

Shortly after the market open, the Dow Jones Industrial Average and S&P 500–which climbed nearly 7% and 18% in 2020, respectively–were down about 0.3% and 0.1%, respectively.

Meanwhile, the tech-heavy Nasdaq also slipped about 0.1% after surging an eye-popping 45% last year–its second-largest annual gain in history, bested only by a near-90% gain in 1999 right before the tech bubble popped.

After more than quadrupling in value last year, bitcoin prices plunged 13% Monday morning following a record high of $34,000 on Sunday; experts are signaling this type of volatility should be expected with the cryptocurrency. 

Materials and energy firms are heading up gains in the S&P, adding on to end-of-year gains in anticipation of widespread vaccination and a return to pre-pandemic normalcy, with manufacturing firm IDEX Corp and energy company TechnipFMC climbing about 5% each.

Most global markets also pushed higher Monday, with the United Kingdom’s FTSE 100 up 3% and Germany’s DAX Exchange up more than 1%, but Japan’s Nikkei 225 closed down about 1% after the government warned it could declare a state of emergency for the Tokyo area due to a “very severe” Covid-19 surge. 

Listed on the London Stock Exchange, shares of betting company Entain PLC are surging nearly 30% after the firm rejected an $11 billion bid from Las Vegas-based entertainment monolith MGM Resorts that Entain said undervalued it given the recent boom in online betting during the pandemic.

Crucial Quote 

“Stocks are kicking off 2021 where they left off 2020–with solid gains,” says Vital Knowledge Media Founder Adam Crisafulli. “There’s no fresh driver of the advance. It’s simply a continuation of the same themes and trends from last year: solid earnings, massive stimulus and vaccine optimism.” 

Tangent

U.S.-listed shares of Chinese e-commerce juggernaut Alibaba are down 2% Monday as it faces heightened regulatory scrutiny from Beijing regulators and amid speculation over the whereabouts of its founder and former executive chairman, Jack Ma, China’s third-richest person. The stock has plunged nearly 30% from an October high.

What To Watch For

The market could be in for an upset after the two Senate runoffs in Georgia on Tuesday that will ultimately decide which party gets control of the Senate. Crisafulli says an expected win from at least one Republican should help the party retain its majority, creating a tailwind for markets due largely to the softened threat of increased taxes and corporate regulation with a split Congress, though he notes the odds of Democrats winning both seats “are higher than the market appreciates, and stocks will likely view that scenario as a net negative.”

Key Background

Momentum stocks, and particularly those in technology, dominated the pandemic’s bull market in 2020 after a steep market correction in March, but the tide shifted in the weeks since the U.S. election as the outlook brightened for value stocks. Historic breakthroughs on the vaccination front and a new fiscal stimulus deal bolstered many hard-hit industries, such as travel, financials and energy in the final weeks of the year, while growth in technology stocks decelerated. The S&P and Dow both closed at record highs on Thursday, the most recent trading day. Despite the stock-market gains, however, unemployment remains at cripplingly high levels, and experts are warning the economic recovery could get worse before it ultimately gets better.

Further Reading

Here’s How High The Stock Market Will Go In 2021, According To Wall Street’s Experts (Forbes)

Exxon Mobil And Wells Fargo Lost $220 Billion In Market Value This Year–The U.S. Stock Market’s Biggest 2020 Losers (Forbes)

Wall Street Hopes Democrats Lose Georgia Runoff Elections, But Here’s What Investors Should Expect If They Pull Off A Win (Forbes)

The U.S. Government Has Authorized More Than $10,000 Per Person In Stimulus Spending This Year (Forbes)