Jan. 4-8, 2021

What happened last week

Markets hit record highs despite the riot at the U.S. Capitol

In stark contrast to last week’s distressing events in Washington, D.C., North American financial markets remained upbeat as investors looked past the rioting to focus on the long-term implications of the Democratic Party winning control of both houses of the U.S. Congress.

On Monday, despite pre-market activity that pointed toward sharp gains on the first day of 2021 trading, the Dow Jones Industrial Average and the S&P 500 closed with their biggest declines dating back to Oct. 28. The Nasdaq also took a tumble, while Canada’s TSX remained the lone major North American index to close in positive territory. In an unpredictable week, the days that followed saw markets turn upward and reach record highs.

Georgia Senate election results shifted the balance of power in the U.S. Congress

Leading all nations with the highest rate of COVID-19 infections and deaths, the United States continues to grapple with the pandemic that has put millions of Americans out of work. With the Democratic party promising to raise stimulus cheques if they won the two open Senate seats in Georgia’s Jan. 6 runoff election, markets bounced back Tuesday as investors bet on a Democratic sweep and a much-needed economic boost. The Democratic win, which became official on Wednesday, saw Georgia elect their first black senator, Rev. Raphael Warnock, and the youngest senator since Joe Biden, Jon Ossoff. But this news was overshadowed by the actions of a pro-Trump mob that stormed Capitol Hill the same day.

Unfazed by the riot, markets surged to record highs on Wednesday and Thursday, with the Dow breaking the 31,000 level (with its fastest 1,000 point-gain), the S&P 500 surpassing 3,800 points for the first time, the Nasdaq closing above 13,000 points, and Canada’s TSX climbing over the 18,000-point threshold to set its first record since the pandemic started. Reuters and Bloomberg reports both suggested that investors believed the Capitol riot – even though tragic and drawing worldwide condemnation – was an isolated event without long-term implications for the U.S. economy. Instead, the Democratic wins in Georgia, along with Joe Biden’s formal recognition as the next U.S. President, removed lingering uncertainty about the future leadership of the world’s largest economy. A statement from President Donald Trump (after the riot) promising a peaceful transition of power on Jan. 20 helped solidify the situation further.

The stock and bond market*
S&P/TSX Composite 18,042.07 3.49% 3.49%
Dow Jones Industrial Avg. 31,097.97 1.61% 1.61%
S&P 500 Index 3,824.68 1.83% 1.83%
NASDAQ Composite 13,201.98 2.43% 2.43%
10-yr GoC Yield 0.81% 0.14% 0.14%
10-yr U.S. Treasury Yield 1.13% 0.20% 0.20%
WTI Crude Oil (US$/bbl) 52.24 7.67% 7.67%
Canadian Dollar US$0.7871 0.22% 0.22%
Bank of Canada Prime Rate 2.45%

*Weekly performance ending Jan. 8, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.

What’s ahead

U.S. economic data: Several reports, to be released this week, will offer insight into different aspects of the U.S. economy, including inflation, oil and energy supply, housing, trade, employment, retail sales and manufacturing

Circle these dates

  • Jan. 20: Inauguration of Joe Biden as President of the United States
  • • Jan. 20: Bank of Canada interest-rate announcement and Monetary Policy Report
  • • Jan. 26-27: U.S. Federal Reserve meetings and statement

Key take-away

Take the emotion out of it. Sound investment decisions depend on logic, whereas poor investing is most often the result of emotion. Investing in a philosophy and process that makes sense long-term provides peace of mind, knowing your investments can perform through any type of market scenario.

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