January 7 Weekly Market Update

Markets got off to a sluggish start on Monday, the first trading day of the new year. Stocks sold off for a few reasons. First, the number of global COVID-19 cases continues to rise, and there are signs that the virus may be mutating in the UK and South Africa. Second, some investors had been waiting for the calendar to tick over to 2021 to lock in some of their 2020 gains in an effort to postpone capital gains taxes.

As we moved into the middle of the week, the focus shifted. All eyes moved to the Senate runoff elections in Georgia, where both seats were won by Democrats. With Democrats having control of both the Presidency and both houses of Congress, the market began pricing in the greater likelihood of significant fiscal stimulus and increased infrastructure spending. As this potential spending may lead to increased economic growth and, eventually, inflation, the yield on the 10-year Treasury rose above 1% for the first time since early 2020 and gave a shot in the arm to long beleaguered bank stocks. Oil and energy stocks also performed well, not only due to the potential for an economic recovery, but also because Saudi Arabia announced a surprise oil production cut of one million barrels per day in February and March.

While economically sensitive areas of the market like financials and energy performed well in the middle of the week, the shares of large technology companies struggled. With the potential for a Democratic sweep of Congress, investors became concerned that regulatory scrutiny of technology companies may increase. This could consist of everything from a focus on antitrust issues to a greater emphasis on privacy concerns.

Though the market has been focused on COVID-19, vaccines and politics for much of last year, 2021 is off to an interesting start. Investors are, as always, looking for defined answers to difficult questions. Will vaccines truly eradicate the virus in 2021? Will COVID-19 continue mutating? Will we get the elections behind us? What will be the priorities of the Biden administration? Economic unknowns are always present, however, which is why I consider it critical to maintain a well-diversified portfolio, spreading risk across a wide array of asset classes.

Stay safe and be well.

Market comments based on the Dow Jones Industrial Average, S&P 500, and NASDAQ indexes which are unmanaged and cannot be directly invested into. Past performance is no guarantee of future results. Investing involves risk and the potential to lose principal.

Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time and cannot be guaranteed.