Political Clarity Helps Stocks Extend Rally to Record Highs…..

U.S. equities finished higher, notching fresh records along the way, despite yesterday’s troubling events at the U.S. Capitol. Clarity on the political front appeared to buoy sentiment, as the Democrats gained a slim majority in Congress following the Georgia runoff elections, President-elect Joe Biden was officially certified as the President, and current President Donald Trump has promised a peaceful transfer of power. Information Technology issues rebounded, while a rise in Treasury yields to levels not seen since March helped to extend a rally in Financials. The economic calendar delivered some mixed data, with initial jobless claims decelerating but remaining uncomfortably elevated, the trade deficit widening more than expected, and December services sector growth surprisingly accelerating. The U.S. dollar rebounded somewhat from a recent drop to multi-year lows, crude oil prices gained modest ground to add to this week’s rally, and gold posted a slight decline. In equity news, Dow member Walgreens Boots Alliance and Constellation Brands posted positive quarterly results. Overseas, Europe finished higher as the global markets reacted to the unrest and political clarity in the U.S., while markets in Asia were mixed.

The Dow Jones Industrial Average rose 212 points (0.7%) to 31,041, the S&P 500 Index was up 56 points (1.5%) at 3,804, and the Nasdaq Composite increased 327 points (2.6%) to 13,067. In heavy volume, 1.1 billion shares were traded on the NYSE and 6.6 billion shares changed hands on the Nasdaq. WTI crude oil nudged $0.20 higher to $50.83 per barrel. Elsewhere, the Bloomberg gold spot price lost $4.84 to $1,913.77 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 89.63.

Jobless claims decelerate, December services sector growth accelerates…..

Weekly initial jobless claims came in at a level of 787,000 for the week ended January 2, below the Bloomberg consensus estimate of 800,000, and compared to the prior week’s upwardly-revised 790,000 level. The four-week moving average declined by 18,750 to 818,750, while continuing claims for the week ended December 26 fell by 126,000 to 5,072,000, below estimates of 5,200,000. The four-week moving average of continuing claims dropped by 177,250 to 5,274,750.

The December Institute for Supply Management (ISM) non-Manufacturing Index showed expansion in the key services sector (a reading above 50) unexpectedly accelerated to 57.2 from November’s 55.9 level, and above forecasts of a decrease to 54.5. The index continued to expand for the seventh month in a row as growth in new orders and business activity components both increased, while employment fell back to a level depicting contraction and prices dipped but remained north of the 60 mark. The ISM said, “Respondents’ comments are mixed about business conditions and the economy. Various local-and state-level COVID-19 shutdowns continue to negatively impact companies and industries.”

The trade balance showed that the November deficit widened more than anticipated, coming in at $68.1 billion, compared to forecasts of $67.3 billion, after October’s unrevised deficit of $63.1 billion. Exports rose 1.2% month-over-month (m/m), and imports gained 2.9%.

Treasuries were lower, extending a recent drop as the markets assessed the implications of the slim majority in Congress for the Democrats, as the yield on the 2-year note was little changed at 0.14%, while the yield on the 10-year note gained 4 basis points (bps) to 1.08%, and the 30-year bond rate increased 3 bps to 1.85%.

©2020 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

Schwab Center for Financial Research (“SCFR”) is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.