Markets fell Monday with the S&P 500 dropping 1.48%, the Dow Jones Industrial Average losing 1.25%, and the NASDAQ off 0.55%.
Equity prices slid over the course of the day as investors prepared for Tuesday’s Senate runoff elections in Georgia. Analysts have been expecting a divided government for 2021 with Republicans maintaining a majority in the Senate but recent polls show both Democratic candidates with a lead in the Georgia race. Should Democrats sweep both races tomorrow the Senate will be split 50-50, with dies broken by Vice President Kamala Harris.
John Stoltsfus, a strategist at Oppenheimer Research believes a Democratic sweep could result in a 10% selloff in the S&P 500 due to markets preferring a divided government over either party having full control.
Coronavirus
New coronavirus cases have been steadily increasing, hitting nearly 300,000 per day in the wake of the holidays. Experts have been predicting a significant surge in cases after many traveled for the holidays with Dr. Fauci warning of a "surge upon a surge". Vaccines continue to be distributed in the U.S. and the United Kingdom gave its first shots of the AstraZeneca (AZN) and Oxford University vaccine today. The new coronavirus strain has now been found in three U.S. states and a total of 33 countries so far as nations such as New Zealand are tightening their borders once again in response to the mutation. The new strand appears to be more contagious. British Prime Minister Boris Johnson has warned it could be 70% more transmissible than known strands and former FDA commissioner Dr. Scott Gottlieb predicting the mutation will represent a majority of cases by March.Jobs Report
The December jobs report will be released Friday, giving investors more information about the state of the economic recovery. The November report was less than ideal with only 245,000 jobs added. The better-than-expected unemployment rate was due mostly to a drop in labor force participation and temporary layoffs returning to work. Temporary unemployment fell 246,000 but permanent unemployment rose by 160,000. This ratio has increasingly skewed towards permanent unemployment as many workers who were temporarily laid off at the start of the pandemic have returned to work, but many other workers have been laid off permanently and struggled to find a new position.Unfortunately, Wall Street is not expecting any better news from December’s report. Estimates range from 200,000 with some even suggesting we may see a declinewhich would represent the first drop since the pandemic hit last spring. A potential major disruption to the holiday season hiring pattern caused by covid-19 has many analysts unsure of what exactly to expect from Friday’s report. The U.S. has still only recovered a little over half the 22 million jobs lost during the pandemic.
Before the jobs report on Friday, unemployment claims will be released on Thursday. Initial claims have stayed between 700,000 and 900,000 per week since late August after dropping at a rapid pace from almost 6.9 million back in March. The pace of claims of dropping was expected to slow significantly but claims have been mixed since October and remain far higher than the roughly 200,000 weekly claims from before the pandemic. Continuing claims have been dropping steadily outside of Thanksgiving week but have also slowed down recently with last week’s report showing 5.2 million continued claims. That number is far lower than the 24.9 million set in May but remains far higher than the 1.7 million from early March 2020.
Economic Events this Week
Tuesday- 10:00 a.m. - ISM Manufacturing Index
- 8:15 a.m. - ADP Employment Change
- 10:30 a.m. - EIA Crude Oil Inventories
- 8:30 a.m. - Initial Claims
- 8:30 a.m. - Continuing Claims
- 10:00 a.m. - ISM Non-Manufacturing Index
- 8:30 a.m. - Nonfarm Payrolls
- 8:30 a.m. - Unemployment Rate
- 8:30 a.m. - Average Hourly Earnings