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.