Key factors driving markets at the start of 2021

On the latest edition of Market Week in Review, Chief Investment Strategist Erik Ristuben and Head of Portfolio & Business Consulting Sophie Antal Gilbert discussed market reaction to the Georgia runoff elections for the U.S. Senate and to the riots at the U.S. Capitol. They also reviewed December’s employment report for the U.S., in addition to market impacts of the new UK-European Union trade deal.

Democrats win Senate control, powering rise in U.S. equities

Markets responded positively to the news that the Democratic Party will control the Senate following victories by both of its candidates in the Jan. 5 runoff elections in Georgia, Ristuben said. As of mid-morning Pacific time on Jan. 8, the S&P 500® Index had risen 1.5% on the week, he noted.

“While Democratic control in the Senate will be by the narrowest of margins, the party also has control of the House of Representatives as well as the White House—and this has markets anticipating more fiscal stimulus,” Ristuben explained.

The party’s razor-thin majority in the Senate—Vice President-elect Kamala Harris will serve to break any ties between the chamber’s 50 Democrats and 50 Republicans—means there are challenges to how ambitious its agenda can be, he said. “Democrats don’t have nearly enough seats to override a filibuster,” Ristuben remarked, noting that doing so requires the support of 60 senators. 

He said that the major news of the week—the storming of the U.S. Capitol by a mob of rioters—had little overall impact on market performance. “While markets were distressed by the images coming out of Washington, D.C., there’s not much concern that the events of Jan. 6 will impact the U.S. economy,” Ristuben stated.

U.S. economy sheds 140,000 jobs in December

Turning to the U.S. jobs report for December, released by the Bureau of Labor Statistics on Jan. 8, Ristuben said that 140,000 jobs were shed last month—the first time in eight months the nation recorded a monthly loss in jobs. The unemployment rate, he noted, remained unchanged from November, at 6.7%.

“This weak jobs number is essentially a confirmation of what markets had been anticipating—that the recent measures taken to limit the spread of COVID-19 would have an impact on the U.S. economy. One of the first places these impacts have surfaced in is the labor market,” Ristuben explained. He added that the disappointing numbers from December will likely strengthen the case for additional stimulus from Congress.

FTSE 100 soars in wake of post-Brexit deal

Turning to Brexit, Ristuben said that the Brexit trade deal struck between the UK and the European Union (EU) on Christmas Eve has lifted European markets to start the year, with the FTSE 100 Index ending the week of Jan. 4 up roughly 6%. The STOXX® Europe 600 Index performed solidly as well, rising approximately 3% in the same time frame, he noted.

The strong start to 2021 for UK and European equities brings the region more in line with the rest of the globe, which has seen strong market performance for the past month, he noted. “Now that there’s a post-Brexit deal in place, other recent positive news—such as the rollout of COVID-19 vaccines and the potential for more stimulus worldwide—is finally being reflected in UK and European stock prices,” Ristuben concluded.

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