A Santa Claus rally for the US stock market during the first trading week of 2021 ran into both a severe political event and major economic data, which both were completely ignored as major stock indices made new closing highs. The unprecedented invasion of protesters in the US Capitol did not cause any worries to investors and traders as the political turmoil was neglected. Still, the weak US Jobs report which was a big miss highlights the fact that not all things are ideal for the US economy yet, and just focusing on the post-vaccine era ignoring the fundamentals may be a scenario with plenty of volatility for 2021. What is notable and must be mentioned is the rise of the US 10-year yield above 1.0% for the first time in many months and the spike of the WTI crude oil above $50 per barrel.
This oil price could well be a factor for unexpected inflationary pressures in 2021, and a negative factor for the costs of many companies and their profitability. Still, my major worry is the stretched valuation of the US stock market, and especially tech stocks, which could have a selloff in 2021 should a focus on their price and premium paid to return to the stock market and corporate earnings miss expectations.
Economic News
The economic data reported for the week was mixed for the US economy. The Institute for Supply Management (ISM) Manufacturing Index came in at 60.7, better than expected at 56.6, and showed strength in the business conditions for the manufacturing sector. The Services Purchasing Managers Index (PMI) was a marginal miss with a figure of 54.8, compared to the consensus of 55.3.
The Goods and Services Trade Balance released figure came in at $-68.1 B, worse than the forecast of $-65.2 B.
The nonfarm payrolls figure released was -140 K, a big miss compared to the consensus of 71 K, and the first decline since April 2020. The average hourly earnings increased and the unemployment rate kept unchanged at 6.7%. The weekly initial jobless claims and continuing jobless claims reported were both better than expected.
For the week of January 4- January 8, 2021, the major US stock market indexes closed as follows on Friday, January 8, 2021:
• Dow Jones Industrial Average: Close 31097.97, +1.61% for the week, +1.61% Year-to-date
• S&P 500 Index: Close 3824.68, +1.83% for the week, +1.83% Year-to-date
• Nasdaq Composite: Close 13201.98, +2.43% for the week, +2.43%, Year-to-date
• Russell 2000: Close 2091.66, +5.91% for the week, +5.91% Year-to-date
Economic events for the week January 11- January 15, 2021:
Important economic data for the next week will be the weekly Initial and Continuing Jobless Claims, the Consumer Price Index, the Retail Sales, and the Michigan Consumer Sentiment Index.
Sources:
https://www.wsj.com/market-data/stocks/us/indexes
https://www.fxstreet.com/economic-calendar
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