05 January 2021

Wall Street Begins 2021 With Strong Sell-Off

Tags

News shaping
the markets today

     

What’s happening: US stocks tumbled from their record highs achieved last year, with the Dow Jones index shedding around 400 points on the first trading day of the new year.

What happened: US equities closed last year with strong gains on positive developments related to covid-19 vaccines and the announcement of stimulus measures.

The first trading day of 2021 witnessed widespread profit taking on Wall Street, amid rising concerns around the surge in infections globally and the runoff elections in Georgia this week. The US recording the strongest growth in factory activity in six years failed to lift investor sentiment.

Why it matters: US stocks surged to record highs last year, with the Dow Jones index ending 2020 with a gain of 7.3%, while the S&P 500 added 16.3%. The Nasdaq 100 delivered a standout performance, rising 43.6%.

Stocks tumbled on Monday, as investors took the opportunity to book profits. Sentiment was also hit by the rising number of covid-19 cases, with over 85.6 million infections confirmed worldwide till date. Investors remained concerned around cases in America reaching almost 21 million, while confirming some cases of the new variant of the virus that had earlier been detected in the UK. Meanwhile, UK Prime Minister Boris Johnson announced a nationwide lockdown, despite the rollout of the vaccine developed jointly by AstraZeneca and Oxford University.

On the other hand, a slowdown in the distribution of covid-19 vaccines in the US due to supply constraints also hampered investor confidence.

Markets also kept a close eye on Georgia’s runoff elections, which will ultimately decide whether the Republicans or Democrats control the Senate. Investors look forward to the Republicans gaining control of the chamber, given the corporate tax policies of the Biden administration.

Investors remained unmoved by positive news on the economic data front, with the IHS Markit manufacturing PMI climbing to 57.1 in December, from a reading of 56.7 in November. The latest reading marked the sharpest growth in the country’s factory activity since September 2014.

US stocks started Monday by climbing to new record highs but quickly gave up gains as the session progressed. The Dow Jones index ended the day with losses of 382.59 points, closing at 30,223.8, with Coca Cola and Boeing being among the worst performing stocks in the index. The 30-stock index had tumbled more than 700 points during the session.

The S&P 500 declined by 1.5% to reach 3,700.65, with real estate stocks leading the downturn. The Nasdaq 100 also shed 1.5% to settle at 12,698.45 on Monday. This was the first time since 2016 that Wall Street closed lower on the first trading session of the year.

Even amid the wider downturn, Tesla’s shares hit a record high after the electric vehicle maker reported higher-than-expected deliveries for 2020.

What to watch: Markets await data on the ISM New York index and ISM manufacturing PMI. The ISM manufacturing PMI is expected to decline to 56.6 in December, from 57.5 in the prior month.

Investors will continue to keep an eye on the Georgia elections and the rollout of covid-19 vaccines in the country.

The Markets Today

     

Crude oil will be in focus today ahead of the API’s (American Petroleum Institute) data on crude inventories.

Context: Oil futures settled lower on Monday after the OPEC+ (Organization of the Petroleum Exporting Countries and its allies) failed to reach an agreement on its output policy for the near future.

Details: The OPEC+ group had agreed in December to increase production by 500,000 bpd (barrels per day) from January 1. Members met on Monday to decide on the output policy to follow in February.

Saudi energy minister Prince Abdulaziz bin Salman said in his opening remarks that the OPEC and its allies should expect global demand for oil to remain constrained by the reimposition of restrictions to contain the spread of the new strain of covid-19, despite the arrival of vaccines being a “very welcome sign.”

The group failed to reach any deal on Monday and is scheduled to meet again today to arrive at a consensus on next month’s production policy.

Amena Bakr, deputy bureau chief and chief OPEC correspondent said in a tweet that most members of the OPEC+ group favoured continuing the current output levels, while countries like Russia and Kazakhstan wish to increase production by 500,000 bpd in February.

WTI (West Texas Intermediate) crude for February delivery shed around 1.9% to close at $47.62 per barrel on the NYMEX (New York Mercantile Exchange), while Brent crude for March slipped 1.4% to $51.09 per barrel on Monday.

What to watch: Markets await API’s data on crude oil stockpiles, which had declined by 4.8 million barrels during the week ended December 25, versus a 2.7 million rise in the prior week.

Investors will keep a close eye on the OPEC+ meeting, which is scheduled to resume today at 9:30am ET.

Other Markets: European trading indices closed higher on Monday, with the FTSE 100, German DAX 30 and French 40 up by 1.72%, 0.06% and 0.68%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s unemployment rate, unemployment change and retail sales, Spain’s unemployment change, tourist arrivals and consumer confidence indicator, Eurozone’s household credit growth, loans to private sector and money supply M3, UK new car registrations, Mexico’s business confidence, Canada’s industrial product price index and raw materials price index, South Africa’s total vehicle sales as well as the US Redbook index.

 

ADS Securities London Limited “ADSS” is an execution-only service provider. This material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or investment objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by ADSS that any particular investment, security, transaction or investment strategy is suitable for any specific person. To the extent that any content in this material is construed as investment research, you must note and accept that the content was not prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.  This material may contain links to third party websites, and any content, or use of your personal data by any third party websites is not the responsibility of ADSS or any member of the ADSS Group.