It is interesting to watch how markets react to politics. Many investors where spruiking that the markets would correct if the democrats won the runoff. Instead, it rallied. What this tells us is that right now the market is all about stimulus. Markets want more US fiscal stimulus, they want more central bank stimulus.
This morning we saw calls for Mike Pense to enact the 25th amendment which would remove Donald Trump from power. This came after the Riots in the capital yesterday. One way or another Joe Biden is president on the 20th of Jan, So none of this is likely to affect markets.
If Joe Biden pushes more fiscal stimulus through straight away then we expect markets to hold and rise. But we must watch out for any talks of Corporate tax increases, the market may then finally have a bit of a correction.
US reporting kicks off towards the end of next week. This would trigger certain stocks to move largely as we get further insight into how well or bad stocks are going in this uncertain environment. Keep n mind people will be focused on future guidance more than current profitability.
Despite strong gains yesterday, the XJO is still drifting sideways at the moment, with resistance around 6,750 and support around 6,580; although we do look set to test that resistance level today. Unless we close above 6,750, we would expect continued sideways to bullish movement. Our futures are up 21 points and the Australian dollar has fallen, so we could have a strong end to the week.
Our market has been on a strong uptrend across the second half of 2020 but has found some strong resistance at or just below the very key 6,800 level. The longer term trend is still up, but the market has recently been held back by our strong AUD. There has also been little volume in our market last week, but volumes started to pick up this week. If we can break above 6,750-6,800, don’t be surprised if our market records further gains.
There are always opportunities in the market and 2021 could be a great year for certain beaten down sectors should life return to normal. Stocks in the energy, travel, or tourism space could definitely benefit from a COVID-19 vaccine, especially if we start seeing international borders reopen. Oil prices in particular are starting to rise in earnest, so energy stocks could be a sector of the market to target.
US shares rose strongly overnight, with investors happy to shrug off the storming of the nation’s capital. The rally has mostly been ascribed to the belief that US Democrats will push through more generous stimulus packages, and that Joe Biden will have a smoother period as President. A further rally in car company Tesla has made Elon Musk the richest man in the world overnight.
President Elect Joe Biden has indicated that he is willing to push through the $2000 stimulus cheques for American adults, which the market has also loved. Economic data was largely positive overnight, with Jobless claims and services data all better than expected. Technology was the strongest sector overnight, with only Telecoms and Utilities closing lower.