At this stage it is likely that the Democrats have won both senate seats, but it is still to close to call. It was widely thought that a Democrat win of the senate would end with the markets correcting downward. What we saw last night on the market was not the case. What we have seen instead is heavy buying in sectors that will benefit from more stimulus checks and infrastructure spending.
This week is likely to remain volatile as markets digest the final senate results. Protesting in Washington is yet to have any real effect on the market mood and with calls for calm I don’t expect it to escalate further.
Starting in 2021 the market will be focused on-
• US senate runoff elections
• Covid-19 Cases vs Vaccine roll out
• US company reporting
• China relations
• What actions will Joe Biden take after Jan 20
• Any more Central bank spending or Government stimulus
Australian Outlook
The XJO is still drifting sideways at the moment, with resistance around 6,750 and support around 6,580. Our market will jump strongly higher today towards the top of this channel but unless we close above 6,750, we would expect continued sideways to bullish movement. Our futures are down 95 points today, despite a strong Australian dollar so we should have a good day.
Our market has been on a strong uptrend across the second half of 2020 but has found some strong resistance at the very key 6,800 level. The longer term trend is still up, but the market has been held back by our strong AUD. There has also been little volume in our market last week, but volumes started to pick up this week.
There are always opportunities in the market and 2021 could be a great year for certain beaten down sectors should life return to normal. Stocks in the energy, travel, or tourism space could definitely benefit from a COVID-19 vaccine, especially if we start seeing international borders reopen. Oil prices in particular are starting to rise in earnest, so energy stocks could be a sector of the market to target.
US Markets
US shares pushed higher overnight, with reports that all Federal Reserve members are comfortable with the pace of quantitative easing in December. Shares remained elevated despite Trump supporting protestors storming the US Capitol in an attempt to disrupt the certification of the presidential election. Shares were also buoyed by the prospect of a Democratic party victory in both senate seats up for grabs from the US state of Georgia; markets believe that the Democrats are likely to unleash a wave of additional stimulus.
Shares were trading at all-time highs for points in the overnight session, but pulled back with the drama in Washington. US economic data showed worse than expected services data, but better than expected factory orders. Technology stocks closed lower overnight, but every other sector closed higher, with materials and oil & gas stocks the strongest performers.
Tim Michaelides is the Head Trader at Emerald Financial Group.
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