Tuesday January 12th

12-01-2021

Stocks are set to resume 2021 gains with Dow futures up 60 points

U.S. stock index futures were slightly higher early Tuesday after breaking a winning streak as investors grew worried about stocks’ stretched valuations. Dow Jones Industrial average futures added 64 points, or 0.2%. S&P 500 futures and Nasdaq 100 futures also gained 0.2%. On Monday, equities dipped as investors evaluated lofty stock valuations amid recent record highs, seemingly disregarding the backdrop of Covid-19 and political turmoil. On Monday, the Dow lost nearly 90 points, dragged down by a 2.3% drop in Apple’s stock. The S&P 500 dipped 0.66%. The S&P 500 is still up 1.2% for 2021. The Nasdaq Composite was the relative underperformer, dipping 1.25% as Facebook, Amazon, Netflix, and Google-parent Alphabet all closed lower. Tesla closed down 7.8% for its first negative day in 12 and worst day since Sept. 23. Tesla shares were higher by about 2% in premarket trading Tuesday. DoubleLine Capital founder Jeff Gundlach on Monday warned of the market’s extremely high valuations relative to historical standards amid the risk of rising inflation. “At extraordinarily high valuations is where we are, and it’s being supported by massive amounts of stimulus,” Gundlach told CNBC’s Scott Wapner on “Halftime Report.” “If you go back four decades of stock-market data, there are many valuation metrics that are in the top 1-percentile of overvaluation. So, the thing that’s keeping it going, of course, is the Fed with rates at zero and promises to stay at zero,” Gundlach added. This “allows for valuations to be record-breakingly high.” “Historically, when momentum and sentiment indicators are this stretched, the market is due for a period of consolidation,” said Nationwide’s Chief of Investment Research, Mark Hackett. Stocks are coming off a strong week of gains that brought all three major averages to record highs. The major averages shrugged off riots at the U.S. Capitol that led to the House Democrats introducing an article of impeachment on Monday against President Donald Trump for inciting the attack. The lower chamber plans to vote on the article sometime this week. Outperformers on Monday were those most sensitive to economic growth, like banks, retailers and certain small-caps. Last week, President-elect Joe Biden promised an economic stimulus rollout, which he said will be “in the trillions of dollars.” The small-cap benchmark Russell 2000 was flat on Monday as big caps fell. Stocks in Asia-Pacific were mixed on Tuesday, with mainland Chinese stocks leading gains among the region’s major markets. By their close, the Shanghai composite gained 2.18% to 3,608.34 while the Shenzhen component rose 2.28% to 15,460.03. Tuesday’s gains put the Shanghai composite above the 3,600 level for the first time since Dec. 2015, according to Wind Information. Hong Kong’s Hang Seng index advanced more than 1%, as of its final hour of trading. Elsewhere, South Korea’s Kospi declined 0.71% to close at 3,125.95. In Japan, the Nikkei 225 ended its trading day slightly higher at 28,164.34 while the Topix index advanced 0.16% to close at 1,857.94. Oil hit an 11-month high towards $57 a barrel on Tuesday as tighter supply and expectations of a drop in U.S. inventories offset concerns over climbing coronavirus cases globally. Saudi Arabia plans to cut output by an extra 1 million barrels per day (bpd) in February and March to stop inventories from building up. The latest U.S. supply reports are expected to show crude stocks fell for a fifth straight week. Brent crude was 78 cents, or 1.4%, higher at $56.44 a barrel and earlier hit $56.75, the highest since last February. U.S. West Texas Intermediate (WTI) gained 69 cents, or 1.3%, to $52.93. Gold gained about 1% on Tuesday, bouncing off a one-month low touched in the last session, as focus returned to prospects of inflation driven by more U.S. fiscal stimulus under President-elect Joe Biden. Spot gold was up 0.7% at $1,857.63 per ounce at 1218 GMT. On Monday, prices touched their lowest level since Dec. 2. U.S. gold futures gained 0.4% to $1,858.50.