US Wrap – Downbeat start to the week

Near-Term Risks on the Rise

Not the best start to the week for stock markets, with nerves potentially creeping in as countries battle the latest severe wave of Covid-19.

A rising number of countries are seeing cases rising rapidly, despite extreme restrictions already being in place. We were warned this was going to be a difficult winter but this may be far worse than most expected.

With political distractions subsiding in the coming week or so, focus may inevitably drift to the situation around the world which could dampen spirits.

Investors are suddenly clinging on to stimulus hopes from the new administration but even that comes with a cost. Yields have been on the rise and while the 10-year is only a little above 1%, it may not take much to spook investors and ignite fears of a taper tantrum.

Fortunately, there’s a lot of Fed speak this week, so ample opportunity to put any nerves at ease.

Tech stocks also aren’t feeling the love today, suffering a backlash in the aftermath of a decisions made following the events on Capitol Hill last week. There have been concerns about the role of social media for some time, with big tech as a whole seen as being too powerful.

And while some will inevitably be pleased with the actions taken, there are a growing number of people on both sides of the divide that are uncomfortable with the power the firms yield which may lead to more aggressive action in the coming months and years.

With earnings season getting underway later in the week, investors may be looking for reasons to be more cheerful at the start of the year, even given the current sky high valuations.

It could be a tough ask with the outlook once again highly uncertain in the near-term, made all the more so by highly contagious new strains of Covid-19.

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