That wasn’t such a great start to the new year. The S&P 500
SPX,
slumped 1.5% to start the 2021 trading year, its worst single-day decline since Oct. 28.
Maybe one day does represent a trend. Kirk Spano, the veteran newsletter writer of Fundamental Trends, writes that “2020 was buy the rumor, and 2021 will be sell the news.”
Stocks, he says, need time to catch up to valuations, even accounting for zero interest rates. “It’s literally cheaper to start a company today than buy one. This might explain all the SPACs,” he says, referring to the special-purpose acquisition companies that have surged in demand last year.
“Imagine a world without COVID-19 and massive Fed liquidity injections. 2020 could very well have been a choppy year. Now, suddenly valuations are even higher and there’s permanent damage to the economy that requires a prolonged rebuilding period,” he says.
Spano expects a choppy year with the S&P 500 reaching as high as 4,000 — a “shiny round numbered object,” as he calls it — but the index also falling to 3,000 or even lower. Besides consolidate, markets also need to separate out the struggling zombies, companies that can’t meet their debt-servicing costs from profits, which could account for up to 40% of the S&P 500.
The Georgia Senate race could result in an initial decline if Democrats sweep, as investors start to price in higher taxes on the wealthy. But, he says, increased investment in infrastructure, education and health care will take the economy, and stocks, higher in that scenario.
He also says bitcoin
BTCUSD,
is susceptible to toughened regulation from Treasury secretary nominee Janet Yellen. “I don’t think governments and central banks would, or should, and maybe even can’t, destroy bitcoin, but they can make life very, very difficult and lower priced,” he says. There is also competition coming from the digital dollar, euro and yen that will have central bank backing. (Late on Monday, the Office of the Comptroller of the Currency said U.S. institutions can use so-called stablecoins for payment activities and participate as nodes in a blockchain.)
The buzz
Georgia holds its runoff elections for two Senate seats, with the result determining control of the U.S. Senate. Analysts caution that the close races might not be called for days.
The coronavirus situation in the U.S. and Europe continues to worsen, with the U.K. now locked down until mid February and Germany expected to be shut down through the end of January. As it has seemingly every day the last three months, the U.S. set a record for hospitalizations at 128,210, according to the COVID-19 tracking project. Through Monday, the U.S. has inoculated 4.56 million, according to the Centers for Disease Control and Prevention, or 22% of the number who have contracted the disease.
German biotechnology company BioNTech
BNTX,
joined its partner U.S. drug company Pfizer
PFE,
in saying there is no evidence that delaying the second inoculation of their coronavirus vaccine would be effective beyond three weeks, a move the U.K. has made and Germany is considering, but one that the U.S. Food and Drug Administration has resisted. There is also concern vaccines won’t be effective against the so-called South African variant of the virus.
The New York Stock Exchange, a unit of the Intercontinental Exchange
ICE,
,
reversed its decision to delist three Chinese telecommunications firms, including China Mobile
CHL,
.
Micron Technology
MU,
rose as the microchip maker received a double upgrade from Citi ahead of its quarterly results.
The Institute for Supply Management releases its December manufacturing report at 10 a.m. Eastern. Cleveland Federal Reserve President Loretta Mester said, after markets closed, that monetary policy doesn’t need to be changed.
The markets
U.S. stock futures
ES00,
NQ00,
drifted lower. Gold
GCF21,
rose, as did oil futures
CL.1,
.
The U.S. dollar
DXY,
drifted lower, and the yield on the 10-year Treasury
TMUBMUSD10Y,
was 0.93%.
The chart
The Dallas Fed surveyed oil and gas companies in its region on a variety of topics, including where they expect oil prices to be at the end of the year (between $45 and $55) and their capital expenditure plans. One table that stood out is the lack of environmental efforts despite the investor pressure in this area. Even of the largest companies — that produce at least 10,000 barrels a day — only half have a plan to reduce carbon dioxide emissions.
A separate report from Bank of America found that institutional investors thought the oil-and-gas sector had the biggest opportunity for environmental, social and governance issue improvement.
Random reads
Why Queen Elizabeth II always leaves the festive decorations up past Twelfth Night.
Where you can get a 20-year fixed-rate mortgage with a 0% interest rate.
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