Go small or go home?

  • Bulls claim first week of new year, Russell 2K soars
  • Dems control Senate, oil prices jump, jobs market weakens
  • This week: Earnings season begins

After stumbling out of the gate last Monday, the S&P 500 (SPX) quickly recovered its stride and closed the first week of the new year with multiple record highs as the Senate run-off elections appeared to help the Street develop a clearer picture of the US policy landscape:

Chart 1: S&P 500 (SPX), 10/23/20–12/31/20. S&P 500 (SPX) price chart. New year, new records.

Source: Power E*TRADE

The headline: Bulls inaugurate 2021 as Dems complete sweep of Congress.

The fine print: The Democratic Party secured control of the House, Senate, and White House for the first time since 2009–2011. The market’s initial reaction to the decisive Senate run-offs in Georgia—a huge rally, led by small caps and financials—may have suggested the Street was looking past its typical reservations about one-party government and focusing on the possibility of more economic stimulus, as well as potentially favorable policies for specific sectors, such as health care.

The number: 140,000, the number of jobs the US lost in December—the first labor market contraction since April—as still-high COVID cases renewed lockdowns.

The scorecard: The Russell 2000 (RUT) gained a whopping 4% last Wednesday, helping the small-cap index log its best week in nearly two months:

US stock index performance table for week ending 1/8/20. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source (data): Power E*TRADE

Sector roundup: The strongest S&P 500 sectors last week were energy (+9.5%), materials (+5.5%), and financials (+4.7%). The weakest sectors were real estate (-2.5%), consumer staples (-1%), and utilities (-0.5%).

Highlight reel: On the upside, Atomera (ATOM) +37% to $21.82 on Tuesday, Arcturus Therapeutics (ARCT) +36% to $66.97 on Thursday. On the downside, QuantumScape (QS) -41% to $49.96 on Monday, Sarepta Therapeutics (SRPT) -51% to $82.29 on Friday.

Futures action: February WTI crude oil (CLG1) broke out of a two-week range, rallying as high as $52.75 on Friday. February gold (GCG1) tagged a nearly two-month high of $1,962.50/ounce on Wednesday before tumbling to $1,835.40 by Friday. March US dollar index futures (DXH1) set a new contract low of 89.16 on Wednesday.

Last week's biggest futures up moves: January bitcoin (BTCF1) +34.3%, February RBOB gasoline (RBG1) +9.7%, February WTI crude oil (CLG1) +8.4%. Last week's biggest futures down moves: March Ultra T-bond (UBH1) -4.2%, March South African Rand (6ZH1) -4.1%, February Brazilian real (6LG1) -4.1%.

Coming this week

The first earnings season of the year kicks off this week:

Monday: AZZ (AZZ), Commercial Metals (CMC), Limoneira (LMNR), SYNNEX (SNX)
Tuesday: Albertsons (ACI), KB Home (KBH)
Wednesday: IHS Markit (INFO), Infosys (INFY)
Thursday: BlackRock (BLK), First Republic Bank (FRC), Progress Software (PRGS)
Friday: Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC), PNC Financial Services (PNC)

Retail sales and inflation data stand out on the economic calendar:

Tuesday: NFIB Business Optimism Index, JOLTs Job Openings
Wednesday: Consumer Price Index (CPI), Fed Beige Book
Thursday: Import and Export Prices
Friday: Retail Sales, Empire State Manufacturing Index, Producer Price Index (PPI), Industrial Production, Capacity Utilization, Business Inventories

Go to the E*TRADE market calendar for an up-to-date earnings schedule and complete list of splits, dividends, IPOs, and economic reports. The Active Trader Commentary also lists earnings announcements, IPOs, and economic report times each morning.

Movers and shakers

Some hits and misses from the first week of 2021:

●Saudi Arabia’s surprise announcement that it would trim oil production for February and March helped push crude prices to their highest levels in nearly a year, launching energy stocks in the process. Oil, which had been weakening for more than a year before COVID sent prices into a freefall, is closing in on its pre-pandemic levels (roughly $60 in the WTI futures contract), which traders may be eying as possible resistance.

●The second- and third-strongest sectors last week, materials and financials, arguably got a bid from traders suspecting a Democrat-controlled government is more likely to accelerate economic stimulus.

●Tech started out the year on a shaky note, but it was a tale of two techs: Big tech took a hit as the Street initially appeared to bet that Democrats were more likely to further regulate and/or break up some of the mega players,1 but other areas of the sector, including semiconductors, took off to the upside.

Finally, the SPX gained ground the first week in January for the 43rd time in the past 65 years—nothing particularly remarkable about that. But for what it’s worth, the index has posted an up year 80% of the time after a first-week rally—a little better than its overall percentage of winning years (72%).2


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1 Reuters. US STOCKS-Nasdaq futures slump 2% on prospects of Democrat-controlled Senate. 1/6/21.
2 Reflects S&P 500 (SPX) monthly closing prices, 1957–2021. Supporting document available upon request.

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