Stocks Begin New Year on Strong Foot as Global Recovery Takes Hold

Stocks begin 2021 on a strong note as investors look for the global recovery to accelerate and prepare for a busy month of news and events.

The S&P 500 rose 1.4 percent in the holiday-shortened week between Thursday, December 24, and Thursday, December 31. The index closed the year at a new record high, along with the Nasdaq-100 and Dow Jones Industrial Average.

Several forces are supporting stock prices despite the ongoing coronavirus pandemic. First, investors are hopeful for more stimulus from Congress. Second, economic data like jobless claims have stabilized after weakening in early December. Third, growth is doing even better overseas — specially in Asia. Fourth, the U.S. dollar is falling. Fifth, more initial public offerings and corporate earnings are coming soon. Analysts also expect strong demand for Apple’s (AAPL) iPhone 12.

The weak dollar was a big story last week, lifting emerging markets like China. Industrial metals like steel ended 2020 on a strong note, and precious metals like gold may be trying to break out. These could be major trends in coming months because the U.S. is still struggling with coronavirus while Asia surges back.

Tesla, Nio Demand Surging

Electric cars were a huge story last year as Tesla (TSLA) rallied more than 700 percent and Nio (NIO) surged over 1,000 percent. Both reported strong sales last weekend. TSLA delivered a record 180,570 vehicles in the fourth quarter and began production on its Shanghai assembly line. NIO’s December sales more than doubled year-over-year.

Even with electric vehicles gaining traction, fossil-fuel companies led the market in the fourth quarter. Given the market’s recent shift toward value stocks and the global recovery, investors may remain interested in this sector following historic declines last year.

Bitcoin Breaks Out

Another big trend recently was the breakout in Bitcoin. The cryptocurrency pushed above $24,400 for the first time ever on Christmas Day. It was above $30,000 shortly after New Year’s Day and approached $35,000 yesterday. Ethereum also crossed above $1,000 for the first time in almost three years.

Digital assets have benefited from increased demand from traditional investors and depreciation of the U.S. dollar.

S&P 500 daily chart, showing key levels.

S&P 500 Over 3,700

Last week marked the first time the S&P 500 remained above 3,700 for an entire week. The index had spent most of the month trying to break above that level.

This week has some important events:

  • Today: Construction spending
  • Tuesday: The Institute for Supply Management’s manufacturing index
  • Wednesday: ADP’s private-sector payrolls report, crude-oil inventories and minutes from the last Federal Reserve meeting
  • Thursday: Initial jobless claims, ISM’s service-sector index
  • Friday: Non-farm payrolls.

There are even more catalysts later in the month. Next week features the Consumer Electronics Show and J.P. Morgan’s 39th Annual Health Care conference. Earnings season the following week is expected to show profits spiking more than 20 percent as businesses reopen from the pandemic. There’s also a Fed meeting on Jan. 27.

In conclusion, we hope everyone had a restful holidays because it’s going to be busy for the next few weeks.

This article was written by David Russell, TradeStation Securities, Inc., part of the Monex Group Inc, published on 04/01/2021.

David Russell
David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.

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