Stocks fall to start year of great expectations

U.S. stocks pulled back from their recent record highs Monday, as big swings return to Wall Street at the onset of a year where the dominant expectation is for a powerful economic rebound to sweep the world.

The S&P 500, which ended 2020 at an all-time high, slid 1.5%. It was the benchmark index’s biggest decline since late October. Technology companies accounted for a big share of the sell-off, along with industrial, communication services, health care and other stocks. Only the S&P 500’s energy sector managed to eked out a gain.

The selling comes as coronavirus cases keep climbing at frightening rates around the world, threatening to bring more lockdown orders that would punish the economy. The worsening numbers also raise the possibility that Wall Street has been overly optimistic about the big economic recovery it sees coming because of COVID-19 vaccines.

Tuesday’s upcoming runoff elections to determine which party controls the Senate may also be contributing to the volatility.

“We’ve got a wobbly start to the year here,” said Lindsey Bell, chief investment strategist at Ally Invest. “Investors are looking for a reason to lock in profits. The selling is probably a bit overdone.”

The S&P 500 fell 55.42 points to 3,700.65. The Dow Jones Industrial Average also fell from its record set last week, shedding 382.59 points, or 1.3%, to 30,223.89. At one point, it was down 724 points. The tech-heavy Nasdaq composite lost 189.84 points, or 1.5%, to 12,698.45. Small company stocks, which have been notching solid gains in recent weeks, also fell. The Russell 2000 index of smaller companies dropped 28.94 points, or 1.5%, to 1,945.91.

Treasury yields held relatively steady after giving up a healthy gain in the morning. Gold jumped 2.7%, while the price of U.S. crude oil fell 1.9%.

Stocks also fell in Japan as officials there mull a state of emergency due to surging virus cases. But optimism was more prevalent in other markets, with European and most Asian indexes closing higher.

The United Kingdom has been hit particularly hard by a new variant of the coronavirus that appears to be more contagious. On Monday, the United Kingdom became the first nation to start using the COVID-19 vaccine developed by Oxford University and drugmaker AstraZeneca.

In the United States, regulators have already approved two other vaccines. China last week gave the greenlight for its first domestically developed vaccine. Others are also being tested.

Investors have been hoping that vaccines will allow daily life around the world to slowly return to normal. That’s helped spark a recent recovery for stocks of travelrelated businesses, smaller companies and other industries left behind for much of the pandemic.

Still, rising coronavirus cases, the emergence of a mutant variant of the virus and concerns that the rollout of the vaccine isn’t happening fast enough are keeping investors on edge, said Adam Taback, chief investment officer for Wells Fargo Private Bank.

“The (virus), the severity of the impact it’s going to have during the winter, is still weighing on people’s minds,” Taback said.

Even though infection rates and hospitalizations are at frightening levels, many investors have been betting that ultralow interest rates provided by the Federal Reserve and financial support for the economy recently approved by Congress can help tide the economy over until vaccinations become more widespread.

Governments might throw less stimulus at their economies than last year, but policy is “still at a very loose setting,” which supports stock prices and lending, said Kerry Craig of JP Morgan Asset Management in a report.

“Investors should look through the bumpier start to the new economic cycle and focus on the improved earnings outlook,” Craig said.

Of course, many risks remain for the market, even beyond the threat of economic lockdowns coming in the near term because of the raging pandemic. Prices have climbed enough that critics say stocks may be too expensive, particularly if the big rebound in corporate profits that investors expect to occur later this year doesn’t materialize.

Politics is also still a wild card. If Democrats sweep the two runoff races in Georgia, that could lead to higher corporate tax rates, tighter regulations and other changes from Washington that would hinder corporate profits. Democrats already control the House, and President-elect Joe Biden is a Democrat.

“The concern around that is regulatory risk and tax policy risk are back on the table,” Bell said. “That has investors feeling a little bit anxious.”

But even in a Democratic sweep, markets see some causes for upside, including the potential for more stimulus for the economy.

There she goes again! In today’s newspaper, Councilwoman Vaughn resorts to her name-calling, referring to suspended Trenton detective, Sgt. David Ordille, as a “bad apple”. Councilwoman Vaughn needs to look in the mirror, and she will see what a bad apple looks like.

In the next municipal election, Trenton voters should remember Vaughn’s foul-mouthed and filthy language that was caught on tape during a closed council meeting. The words that she used were both embarrassing and appalling for a council member. Her language clearly qualified her for being a bad apple on the city council.

Trenton deserves a city council comprised of members who exhibit impeccable character. Council members have every right to criticize and raise objections, but displaying arrogance and foul language has no place in the council chambers.

The bottom line is simply this: Councilwoman Vaughn should think twice before calling anyone a bad apple. — A Reader

In this case, I agree with Vaughn in principle. Cops shouldn’t be allowed to lie on the paperwork they use to lock people up. The Ordille case specifically, it seems especially egregious because it makes it seem like this is just standard operating procedure. That’s scary if it is true. Even if they know it is for the good fight of getting the bad guys locked up, they still can’t take shortcuts. They will either lock up the wrong people, or they will make it so a good lawyer could get criminals off on procedural questions. Either way, it’s not a good outcome.

— Ed Note

Got something you want to get off your chest? To contribute to Back Talk, call Ed at 609-3580861 or email him at EdNote@ Trentonian.com.