18 January 2021

US Stocks Plunge, Even As Biden Unveils New Package

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News shaping
the markets today

     

What’s happening: Wall Street stocks tumbled on Friday, even after President-elect Joe Biden announced a $1.9 trillion covid-19 relief package.

What happened: The major US indices closed in the red on Friday, with the banking and energy sectors being the biggest losers.

The latest coronavirus and stimulus plan, to address the US economy’s most urgent needs, takes the total government spending to $4.8 trillion. This is in addition to the monetary stimulus coming from quantitative easing, which has resulted in an 80% increase in the US Federal Reserve’s balance sheet.

Why it matters: Biden’s $1.9 trillion emergency relief fund, announced Thursday night, is designed at serving two broad objectives - direct aid to American families and businesses, given the rapidly deteriorating US economy, and covid-19 testing and vaccine production and delivery, in view of the surging daily infections and deaths across the country.

Investors were concerned whether the massive package was more of a political move than an economically prudent one. However, such concerns may not have been enough to drive the market lower. Analysts believe the sell-off was triggered by profit taking, with sharp rallies in the previous weeks.

“We are seeing sentiment through last week in extreme speculative frothy euphoric optimistic territory…Sometimes it doesn't need a catalyst before it begins to fall on its own weight,” Charles Schwab’s chief investment strategist Liz Ann Sonders said.

US banking stocks tumbled after the first day of the earnings season. The biggest downturns being recorded by the shares of Wells Fargo, Citibank, and JPMorgan Chase, although these banking majors reported better-than-expected profits for the fourth quarter. While shares of both Wells Fargo and Citibank declined by around 7%, JPMorgan Chase’s stock lost almost 2%.

Energy shares plummeted following news of a regulatory probe being initiated for Exxon Mobil Corp and a declining in oil prices. The almost 5% downturn in Exxon Mobil’s shares weighed on the entire sector.

The Dow Jones index shed 177 points to close at 30,814.26 on Thursday, after losing 68.95 points in the previous trading session. The S&P 500 index fell 0.72% to 3,768.25, after declining by 0.4% on Thursday. The Nasdaq 100 lost 0.87% to settle at 12,998.50, after recording a 0.58% dip in the previous day’s trading.

What to watch: After weaker-than-expected retail sales data, markets look forward to signs of a recovery in the US economy. Updates on the rollout of covid-19 vaccines and the total number of confirmed cases will also remain in focus.

The Markets Today

     

Gold will be in focus today following two consecutive days of declines.

Context: Gold lost 1.2% last week and is now 3.9% lower in 2021. Silver recorded even higher losses, down 2.6% last week and 6.4% lower year to date.

Details: Although gold began the year on a positive note, the safe-haven yellow metal came under pressure with news of the Blue wave in the US elections and expectations of Biden’s announcement of the new economic relief plan.

Improving risk appetite on such news kept the pressure on gold prices, even as the worldwide covid-19 cases surged past the 94 million mark, with more than 2 million fatalities. The US Coronavirus Task Force put Florida in the red zone, with more than 13,000 daily cases. The UK, EU countries and Brazil also reported a spike in case. Meanwhile, China reported sporadic outbreaks, as the virus thrived in cold temperatures. Malaysia reimposed a lockdown, with daily infections surging to 2,000.

Investors chose to instead focus on vaccination production and delivery in various countries across the globe. Gold price slipped over the weekend, as India commenced the world's largest covid-19 vaccination drive and announced plans to rollout distribution to other countries, starting with its immediate neighbors.

Precious metals also lost favor, as investors chose to add their safe-haven rival, the US dollar, to their portfolio. The US dollar index gained 0.6% to close at $90.78 on Friday.

Gold futures traded down 0.12% to $1,827.70 on Friday, while silver prices fell by 0.14% to $24.83.

What to watch: Markets will keep an eye on the performance of the US 10-year Treasury bonds, as an improvement in their interest rate supports the greenback and is inversely related to gold prices.

Other Markets: European trading indices closed lower on Thursday, with the FTSE 100, German DAX 30, French 40 and the STOXX Europe 600 Index down by 0.97%, 1.44%, 1.22% and 1.01%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Italy’s inflation rate, UAE’s loan growth and money supply, South Africa’s business confidence, Turkey’s auto sales, Russia’s current account, Canada’s housing starts, New Zealand’s business confidence and electronic card spending, China’s FDI as well as ECB President Christine Lagarde’s Speech.

 

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