Stocks dropped on Monday as investors assessed equity valuations and the outlook for more Covid-19 relief stimulus, along with ongoing political turmoil.
The Dow Jones Industrial Average slid 145 points, or 0.5%. The S&P 500 dipped 0.7%, and the Nasdaq Composite pulled back by 1.3%.
The stock market is coming off a solid week to start 2021 as investors looked past a violent siege of the Capitol and focused on the prospect for additional fiscal stimulus after a Democratic sweep of Congress. The S&P 500 climbed for four days straight to a record with a 1.8% gain last week. The Dow and the tech-heavy Nasdaq Composite gained 1.6% and 2.4% in the prior week, respectively, also reaching all-time highs.
Yet the rally in the face of political upheaval and a pandemic has raised concerns that investors have grown too exuberant. Shares of Tesla, for example, were up 25% last week and 800% in the last 12 months. They now trade for around 90-times 2021 cash flow. Tesla shares were off by 4%. Bitcoin, which has been a symbol of speculation in the financial markets, was back down to $33,000 on Monday after trading above $40,000 over the weekend.
“After being bullish for several months, we are definitely becoming more cautious on the stock market up at these levels,” Matt Maley, chief market strategist at Miller Tabak, said in a note Sunday. “We believe that the vast majority of the rally from the March lows is behind us…and that a correction is likely to begin at some point in the first quarter of this year.”
Shares of Boeing were off 3.2% on Monday. JPMorgan shares lost 0.6%.
Tensions will be high in Washington again this week and it remains to be seen when or if the markets will be affected by it. Democrats, with the support of some Republicans, are moving toward starting impeachment proceedings in the House of Representatives against President Donald Trump as soon as this week for inciting the mob attack at the Capitol. The House Rules Committee is expected to expedite impeachment proceedings without committee hearings or votes.
House Speaker Nancy Pelosi, D-Calif., said the lower chamber would push for Trump’s impeachment if Vice President Mike Pence and the current administration’s cabinet balked at removing the president through the 25th Amendment.
For now, the market appears to be looking past it because Congress was able to successfully confirm Biden’s election win and Democrats now in the Senate majority are likely to pursue another big stimulus. If these events start to delay or derail those stimulus plans, traders may start to pay more attention.
President-elect Joe Biden pledged Friday a hefty economic stimulus rollout, which he said will be “in the trillions of dollars.” More details will follow in a formal announcement on Thursday, six days before he is slated to take office.
“The advance is built on three main pillars: strong corporate earnings, massive stimulus, and vaccine optimism,” Adam Crisafulli of Vital Knowledge said in a note on Sunday. “Stimulus expectations are getting elevated – Biden’s plan may be worth several trillion dollars on paper, but what actually gets passed will probably be much smaller.”
The need for further stimulus was underscored by an unexpected job loss in December. The Labor Department reported Friday that nonfarm payrolls fell by 140,000 as new lockdown restrictions hammered virus-sensitive industries, marking the first monthly drop since April.
Some on Wall Street see a pullback on the horizon for the market especially after a surprisingly strong 2020. The S&P 500 gained 16.3% last year.
Last week, the benchmark 10-year Treasury yield broke above 1% for the first time since the pandemic-driven turmoil in March.
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