Inventory futures are falling after Wall Road closed at document highs final week

Traders work on the trading floor of the New York Stock Exchange.

NYSE

Stock futures fell overnight on Sunday as investors assessed the outlook for further Covid-19 relief.

The futures on the Dow Jones Industrial Average fell 130 points. S&P 500 futures traded 0.5% lower and Nasdaq 100 traded 0.3%.

The stock market has had a solid week ahead of its 2021 start, as investors looked to a forcible siege of the Capitol and focused on the prospect of additional fiscal stimulus following a Democratic Congress. The S&P 500 climbed to a record 1.8% for four days last week. The Dow and the tech-heavy Nasdaq Composite rose 1.6% and 2.4%, respectively, and hit all-time highs, respectively.

“Progress is based on three main pillars: strong corporate profits, massive stimulus and vaccination optimism,” said Adam Crisafulli of Vital Knowledge in a note on Sunday. “Expectations for the incentives keep getting higher – Biden’s plan may be worth several trillion dollars on paper, but what actually gets passed will likely be much smaller.”

President-elect Joe Biden on Friday promised a bold introduction of economic stimulus that will be in “trillions of dollars”. Further details will be announced in an official announcement on Thursday, six days before he is due to take office.

The need for further incentives was underscored by an unexpected job loss in December. The Labor Department reported Friday that the number of non-farm workers fell by 140,000 as new lockdown restrictions hit virus-sensitive industries. This was the first monthly decline since April.

Political turmoil should continue this week and it remains to be seen when or if the markets will be affected. Democrats, who are supported by some Republicans, want to initiate impeachment proceedings against President Donald Trump in the House of Representatives in order to instigate the mob attack. The House Rules Committee is expected to expedite the impeachment process without the committee hearing or voting.

For now, the market seems to be looking past that as Congress successfully confirmed Biden’s election victory and the Democrats, who are now in the Senate majority, are likely to pursue another major stimulus. If these events start to delay or derail these stimulus plans, traders may pay more attention.

Some on Wall Street are seeing a pullback for the market, especially after a surprisingly strong 2020. The S&P 500 rose 16.3% over the past year.

“After being bullish for a few months, we are definitely becoming more cautious in the equity markets at these levels,” said Matt Maley, chief market strategist at Miller Tabak, in a note on Sunday. “We believe the vast majority of the rally from the March lows is behind us … and that a correction is likely to begin sometime in the first quarter of this year.”

Last week, the benchmark 10-year government bond yield surpassed 1% for the first time since the March pandemic-sparked turmoil.

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