Stocks fell Monday as investors took a pause following last week’s record-setting rally.
The S&P 500 dipped 0.8% after touching a fresh record closing high on Friday. The Dow dropped by more than 200 points, or 0.8%, while the Nasdaq underperformed and fell more than 1% as tech stocks came under pressure.
Last week, stocks had kicked off 2021 on a strong note even amid last week’s violent protest at the U.S. Capitol, as markets looked through the near-term political turbulence and ahead to prospects of greater fiscal stimulus and other support that would likely come about under a unified Democratic government.
“Unprecedented is an overused word these days, but this past week it was used often and without hyperbole,” Societe Generale strategist Klaus Baader said in a note Monday morning. “Markets are looking past Trump’s final days. The inauguration on Jan. 20 is a key event. Policy supports, both fiscal and monetary, will be crucial for investor confidence. Reflation is the theme. Further stimulus can help in the short term.”
A number of economists and equity strategists have recently upgraded their forecasts for economic and earnings growth as more aid appeared increasingly likely under the new administration. In recent notes, Deutsche Bank economists raised their U.S. real GDP growth forecast by about two percentage points to 6.3% year-over-year for the fourth quarter, and Goldman Sachs equity strategists increased their 2021 S&P 500 earnings per share growth rate by two percentage points to 31% over 2020.
“Democratic control of Washington, D.C. after January 20 will bring greater fiscal spending, faster GDP growth, more inflation, and higher interest rates than we had previously assumed,” the Goldman Sachs strategists led by David Kostin said in a note.
Meanwhile, internet tech stocks came under pressure Monday morning after many of these companies banned President Donald Trump and cracked down on other accounts spreading misinformation, in a watershed moment for some platforms that had previously abdicated responsibility over regulating much of the content users posted on their sites.
Shares of Twitter (TWTR) fell more than 10% shortly after market open Monday after the social media platform permanently banned Trump from the social media platform on Friday, citing the risk that he would try to incite further unrest among his supporters after last week’s violent protests at the U.S. Capitol. Facebook (FB) shares also sank more than 1.5% after suspending Trump’s Facebook and Instagram accounts until at least the end of his term, and Snap (SNAP) shares were down 1% after disabling Trump’s account as well. Apple (AAPL) and Google (GOOGL) also removed Parler from their respective app stores after saying the company did not do enough to address violent threats on its platform, and Amazon (AMZN) said it would no longer host Parler on Amazon Web Services.
11:26 a.m. ET: Trump account ban ‘will have some very significant ramifications for Twitter’: D.A. Davidson
Twitter may come under fresh regulatory and earnings pressure in the wake of its ban on President Donald Trump’s account, according to D.A. Davidson senior research analyst Tom Forte.
“It will have some very significant ramifications for Twitter.” Forte told Yahoo Finance live on Monday. “If you look at the excess influence that big tech has on consumers’ lives and you think Amazon, Apple, Facebook and Google – in this case you have to throw Twitter into the picture – and I think they’re putting themselves at risk in particular of losing the protection that content on their platform, they cannot be held accountable for that. So yes, I think Twitter has business ramifications of this decision.”
In banning Trump, Twitter has also created the risk that Trump may seek out or create another platform to use to amplify his statements, thereby taking users with him, Forte added.
“The risk is Trump perhaps starts his own social networking platform or moves his content to a different platform, and now they have some sort of competitive pressure to the extent that user engagement for the platform goes down some percentage point,” Forte said. “So I would say that you could argue that it’s 10% earnings risk for Twitter on the notion that they may have a negative impact on their audience share, and then that could have a negative impact on their ability to draw advertising against their audience share.”
9:59 a.m. ET: How impeachment could impact markets: UBS
Following the violent protests at the U.S. Capitol on Wednesday, lawmakers have increasingly called for the removal of President Donald Trump from office, even with his term coming to an end in less than 10 days.
Lawmakers in the U.S. House of Representatives introduced an article of impeachment against Trump on Monday, citing his actions in “willfully inciting violence against the Government of the United States.” House Speaker Nancy Pelosi said the chamber would move ahead with the impeachment process this week if Vice President Mike Pence fails to quickly remove Trump by invoking the 25th Amendment. Outlets including CNN reported that some Republican lawmakers would also support impeachment.
Previous attempts to impeach Trump did little to move markets, with the Republican-led Senate acquitting him in early 2020 after earlier articles of impeachment around abuse of power and obstruction of justice were brought forward.
However, a successful impeachment this time could carry consequences for markets, according to UBS economist Paul Donovan.
For one thing, impeachment could ban Trump from holding federal office in the future, which would be impactful to investors who think Trump “has a political future that might matter,” Donovan said.
“Impeachment may deepen the partisan political divide, making legislation more difficult to pass,” he added.
Third and finally, “impeachment would take up time in the Biden presidency—and time is a scarce and valuable commodity in Washington, D.C.,” Donovan said.
9:30 a.m. ET: Stocks fall as investors pause following a record rally
Here were the main moves in markets, as of 9:31 a.m. ET:
S&P 500 (^GSPC): -34.09 points (-0.89%) to 3,790.59
Dow (^DJI): -243.07 points (-0.78%) to 30,845.9
Nasdaq (^IXIC): +152.53 points (-1.15%) to 13,048.97
Crude (CL=F): -$0.58 (-1.11%) to $51.66 a barrel
Gold (GC=F): -$4.40 (-0.24%) to $1,831.00 per ounce
10-year Treasury (^TNX): +1.9 bps to yield 1.126%
7:22 a.m. ET Monday: Stock futures point to a lower open
Here were the main moves in markets, as of 7:22 a.m. ET Monday:
S&P 500 futures (ES=F): 3,794.75, down 22.75 points or 0.6%
Dow futures (YM=F): 30.777.00, down 216 points or 0.7%
Nasdaq futures (NQ=F): 13,029.00, down 68.25 points or 0.52%
Crude (CL=F): -$0.29 (-0.56%) to $51.95 a barrel
Gold (GC=F): +$13.20 (+0.72%) to $1,848.60 per ounce
10-year Treasury (^TNX): -0.9 bps to yield 1.098%