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Elsewhere in the world, stocks have plummeted in Japan as officials there consider a state of emergency amid the spike in cases of the virus. But optimism was more prevalent in other markets. Most European and Asian stock indexes were higher, while yields on Treasuries climbed in a sign of rising expectations of economic growth and inflation.
The UK has been hit particularly hard by a new variant of the coronavirus which appears to be more contagious. On Monday, the UK became the first country to start using the COVID-19 vaccine developed by the University of Oxford and drug maker AstraZeneca.
In the United States, regulators have already approved two other vaccines. China last week gave the green light for its first nationally developed vaccine. Others are also tested.
The hope in the markets was that vaccines will allow daily life around the world to slowly return to normal. This has helped trigger a recent rally in inventories of travel-related businesses, small businesses and other industries left behind during much of the pandemic.
Even though infection rates and hospitalizations are at frightening levels, many investors are betting that the extremely low interest rates provided by the Federal Reserve and the financial support for the economy recently approved by Congress can help revive economy until vaccinations become widespread.
Governments might throw less stimulus on their economies than last year, but the policy is “still at a very loose level,” which supports stock prices and lending, said Kerry Craig of JP Morgan Asset Management in a report.
“Investors should look at the bumpier start of the new business cycle and focus on improving the earnings outlook,” Craig said.
Of course, many risks remain for the market, even beyond the threat of short-term economic lockdown due to the raging pandemic. Prices have climbed enough that critics say stocks may be too expensive, particularly if the big rebound in corporate earnings that investors expect to see later this year does not materialize.
Politics is also always a wild card. Two second-round races in Georgia on Tuesday will determine which party controls the Senate.
More than 80% of S&P 500 stocks fell on Monday. On the losing side of the market were several Big Tech stocks. Apple slipped 2.4%, Microsoft fell 2.2%, and Amazon lost 2.1%. Because of their massive size, Big Tech stock movements have much more influence on the S&P 500 than on other companies. These three factors were the biggest problems with the index.
Momentum has slowed for Big Tech stocks, which exploded earlier in the pandemic as workshop and homework trends that benefit them accelerated. Many analysts expect the stock market’s gains to broaden this year as the economy recovers, with Big Tech no longer moving so far away from the rest of the market.
Tesla rose 4% for one of the biggest gains in the S&P 500 after it said it delivered 499,500 vehicles last year. That’s a 36% jump from the year, although it fell short of CEO Elon Musk’s target of 500,000, which was set before the pandemic struck.
On European stock markets, the French CAC 40 rose by 0.7% and the German DAX by 0.1%. The FTSE 100 in London rose 1.8%.
In Asia, Tokyo’s Nikkei 225 lost 0.7% after Prime Minister Yoshihide Suga said a state of emergency was under consideration for the Japanese capital and three surrounding prefectures due to the increase in number of virus cases.
Suga called on restaurants and bars to close at 8 p.m. and said it would be difficult to restart a travel promotion program that was suspended last month. He said the government would speed up approval of coronavirus vaccines and start providing injections in February.
South Korea’s Kospi rose 2.5%, Hong Kong’s Hang Seng 0.9% and Shanghai stocks 0.9%.
On the bond market, the 10-year Treasury yield rose to 0.92% from 0.89% Thursday night. The markets were closed Friday for New Years Day.
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