Market Perspective for January 5, 2021

Equities started the week on a down note as investors bid up inflation related assets. The Dow Jones Industrial Average dipped 1.25 percent, the Nasdaq and Russell 2000 Index 1.47 percent and the S&P 500 Index 1.48 percent. Energy was the lone winning sector on the day. SPDR Energy (XLK) increased 0.16 percent. Equities seemed to dip midday as odds of Democrats winning the Senate increased in betting markets. Two runoff elections will take place on Tuesday and pollsters have the races as dead heats or with Democrats in the lead.

Subsectors that benefit from inflation rose on Monday. SPDR S&P Metals & Mining (XME) climbed 0.63 percent, VanEck Rare Earth (REMX) 4.28 percent, Global X Copper Miners (COPX) 4.78 percent, Global X Silver Miners (SIL) 7.85 percent. Inflation sensitive real estate and utilities were the weakest performers. SPDR Real Estate (XLRE) fell 3.23 percent and SPDR Utilities (XLU) dipped 2.52 percent.

SPDR Consumer Discretionary (XLY) was relatively strong yesterday, dipping only 0.85 percent. Newly added Tesla (TSLA) gained 3.42 percent on Monday.

The 10-year Treasury yield was flat on the day and finished where it ended 2020 at 0.92 percent. iShares 20+ Year Treasury (TLT) saw a small gain of 0.14 percent on the day.

The manufacturing PMI rose to 57.1 in December, up from 56.5 in November. The services PMI is out on Tuesday. Analysts expect a dip from 57.5 in November to 57.0 in December as lockdowns dampen optimism in the service sector.

Economists see weekly unemployment claims rising to 815,000 in the week ended January 2, up from 787,000 the week prior. The Bureau of Labor Statistics publishes the December employment report on Friday. Economists predict only 50,000 new jobs, down from 245,000 in November, as lockdowns negatively impact hiring. They forecast wages rose 0.2 percent.

The U.S. Dollar Index rebounded strongly on Monday. It has been in a downtrend since the start of November, but short-term technical indicators show it could be headed for a slight rebound.

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