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2021's Alarm Goes Off for Market Indexes

Mark Vickery
·4 min read

It’s almost as if 2021 overslept, and its alarm clock didn’t go off until after the opening bell on Wall Street. After a terrific 2020 in the equities markets and a continuation in today’s pre-market, investors sent the first trading day of 2021’s close into the red: the Nasdaq, S&P 500 and Russell 2000 all finished down 1.5%, while the Dow closed -1.25%, but still down 382 points. At its lowest point on the day, the Dow was down 724 points.

Because this selling was across all sectors (only Energy popped its head into the green late in the day), this can be seen as more a booking of profits than anything else. Some analysts had been expecting these types of sell-offs in the last couple trading weeks of 2020, but the Santa Claus Rally was too powerful. Today, with the New Year’s confetti at last out of everyone’s hair, looked to be an opportune moment for this action today.

Are there reasons market participants might have for a bearish mood? Certainly: the raging global pandemic claims 200K new cases and 3000 lives every day in the U.S. alone, and vaccine efforts are currently at about 20% of projected guidance for this time period. Air travel over the holidays easily surpassed 1 million passengers, with many more Americans traveling to different parts of the country by other means, despite strong CDC warnings of spreading the coronavirus. A more highly contagious mutation of Covid-19 has made it even easier to contract the potentially hazardous disease; many healthcare officials expect a spike in new cases even from these terribly high levels.

The Georgia Senate runoff election is tomorrow, with record participation from early voting already. More than 3 million Georgians have so far cast votes for either incumbent Republicans David Perdue and Kelly Loeffler or Democratic challengers Jon Ossoff and Raphael Warnock (98% of voters are expected to stay along party lines). President-elect Joe Biden has already appeared at a rally in Atlanta; tonight President Trump appears at a rally in Dalton, GA. Clearly, much is at stake.

Because Congress has been mixed since 2010, should the incumbents hold their seats we might expect more of the same: gridlock between the houses, slow-walking new initiatives, etc. But if the challengers were to swing Georgia to a Blue state, we might see a different story: larger Covid relief packages passed sooner, large renewable energy infrastructure projects, and, of course, higher taxes for higher-income Americans. Capital gains on investments might be prime for the sharpened knives of a Democratic-run federal government, although the margins would still be razor-thin in both houses.

That said, today’s market activity might involve a bit of a hedge against a new congressional construct. This might carry additional weight with the Republican party stuck between allegiance to Trump and to the state’s electoral integrity. The president’s claims of voter fraud in the state may manifest itself in weaker turnout among conservatives overall, who historically outperform liberal voters in runoff elections.

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