Stimulus Prospects Grow After a Tumultuous Week, Futures Down

11 Jan 2021 · 3rd Party Analysis

WRITTEN BY ThorFX

In Summary

  • Investors welcome stimulus aid
  • Anticipation for core US economic data

US equity futures point to a lower open on Monday following a week full of political and economic events in Washington and on Wall Street. The biggest market-moving political news came on Tuesday when it became clear that the Democrats gain control of the Senate. The two victories in the Georgia Senate runoffs gave Democrats control of the White House and both houses of Congress.

As a result, investors cheered the prospect of a new and bigger round of stimulus that could be facilitated by the blue wave. On Friday, US markets closed positive, led by the Nasdaq Composite, up over 1.00%, or 134.50 points to close at 13,201.98. The S&P500 closed higher by 0.55%, or 20.89 points to close at 3,824.68 points. The Dow Jones Industrial Average moved moderately higher, up 0.18%, or 56.84 points, and closed at 31,097.97.

The market shrugged off a chaotic Wednesday in Washington when Trump supporters stormed the US Capitol and attempted to disrupt the certification of Joe Biden’s victory in the US presidential election. Despite the turmoil, US indexes kept surging to record highs on Wednesday. On Thursday, the Nasdaq Composite rallied more than 2.2% and topped 13,000 for the first time. The aftermath of the US riots in Washington leads to a second attempt by the Democrats to remove Donald Trump from office. On Monday, Democrats will introduce charges of impeachment while having already gathered over 170 signatures in support of the impeachment.

The US Labor Market Still Lags Behind

On Friday, the Labor Department published the latest US jobs data. The economy lost 140,000 jobs in December, leaving the unemployment rate at 6.7%. The job fallout marks the first month the economy has shed jobs since the early times of the pandemic in April. The decline in employment, the first one in eight months, stoked fears that the coronavirus surge in America is stalling the economic recovery. In April last year when the pandemic hit, the US economy lost a staggering 20.8 million jobs. The economy has managed to recover more than half of the lost jobs but is still missing over 10 million. During previous job reports, the figures indicated that momentum has slowed with little prospects that the economic growth and hiring will speed back up again, at least until vaccinations are widely distributed. As per data from the CDC, a total of 6.6 million people have been vaccinated as of Jan 8.

However, investors are banking on a strong recovery in 2021 as they hope that trillions of dollars in federal stimulus will flood the markets with ample liquidity now that Congress is controlled by the Democrats. Ahead of the week, the first half will be light on events coming out of the US. On Wednesday, the US will release the latest Core CPI data. The inflation figures will be closely watched as the market expects higher rates in 2021. Along with the initial jobless claims on Thursday, Fed Chairman Jerome Powell will speak. On Friday, US retail sales (Dec) will be released. Investors will be monitoring whether the figures will show a third consecutive month of declines.

Additionally, on the earnings front, big Wall Street banks will report US fourth-quarter earnings. JPMorgan Chase, Wells Fargo, and Citigroup are lined up to report on Friday. Bank of America, Morgan Stanley, and Goldman Sachs report next week.

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