Impeachment is in the air, Bitcoin takes a bath, and the second leg of the “January Trifecta” hit last week. Some pretty big headlines produced some fairly significant market moves Monday. Here’s a quick take on a few of the markets and news stories on our radar, so you know what we will be following this week.
Stocks Retreat Overnight
Stocks in Europe and the U.S. traded lower during Sunday’s overnight Globex session when rumors of the government’s possibility of imposing new regulations on big tech companies started flying around. This news comes on the heels of several social media giants purging President Trump’s accounts, as well as the accounts of some of his more prominent conformists.
Last week, we saw a lot of optimism in the stock market based on the prospects of further government spending and additional COVID19 relief making its way into consumers’ hands. That optimism was overshadowed early this week by strength in the dollar and headlines coming out of Washington. Though stocks attempted to make a comeback, the Dow, S&P, Russell, and Nasdaq all failed to rally above their respective settlement prices and closed marginally lower for the day.
Monday’s Big News Headlines
Bitcoin Gets Hammered
The consensus seems to be that Bitcoin just went too far too fast. Prices for the benchmark crypto-currency had nearly doubled since early December, and then in one day, it shaved off almost $150 billion in market cap.
Profit-taking and strength in the U.S. dollar are among the many likely reasons why Bitcoin took a bath Monday. But, keep in mind that big corrections are not uncommon in the crypto markets, and many analysts still appear to be bullish for the long-term.
New Articles of Impeachment
On the political front, House Democrats kicked off the week by introducing new articles of impeachment of Donald Trump for inciting an insurrection after last week’s violence on Capitol Hill. The House plans to vote on the articles of impeachment later this week. With only eight days left before Joe Biden takes the big seat, the question of whether there will be enough time for a formal trial to unseat the president before he leaves office is still up in the air.
Democrats have also called on Mike Pence to remove Trump from office by invoking the 25th Amendment, claiming the president’s inability to perform his duty. House Republicans blocked this resolution Monday, and so, House Speaker Nancy Pelosi will bring it back to the floor for a vote on Tuesday.
First Five Days of the Year
It’s widely believed among old-school investors that when the stock market finishes the first five trading days of January higher, the market will close the year in positive territory. Dating back to 1950, the S&P 500 has closed higher more than 80% of the time when the first five days end higher.
The “First Five Days” is the second of three stock market indicators that make up what the Stock Trader’s Almanac has dubbed the “January Indicator Trifecta.” The other two indicators being the “Santa Claus Rally” and the “January Barometer.”
The Santa Rally Claus is a seasonal event that occurs during the last week of the year and carries over into the first two trading days of the new year. The same as with the First Five Days, legend has it that if stocks trade higher during this period, they will close the year with gains. The third and final indicator is “The January Barometer,” which requires stocks to close the first month of the year higher and indicates a bullish tendency for the year’s remainder.
When all three of these indicators come together, they produce a super bullish inclination for the year. So far, the S&P 500 has hit on the first two legs of the trifecta. We will be keeping a close eye on the January Barometer heading into the end of the month and keep you up to date on the outcome.