Profit Taking Contributes To Sharp Pullback On Wall Street

After failing to sustain an initial move to the upside, stocks moved sharply lower over the course of the first trading day of the New Year on Monday. With the pullback, the major averages partly offset the strong gains posted during a turbulent 2020.

The major averages climbed well off their worst levels in afternoon trading but remained firmly negative. The Dow slumped 382.59 points or 1.3 percent to 30,223.89, the Nasdaq plunged 189.84 points or 1.5 percent to 12,698.45 and the S&P 500 tumbled 55.42 points or 1.5 percent to 3,700.65.

Upward momentum to start the New Year contributed to the initial strength on Wall Street, although buying interest waned shortly after the open.

The subsequent pullback partly reflected profit taking after the Dow and the S&P 500 reached new record intraday highs.

Traders may also have been reluctant to continue pushing stocks higher amid uncertainty ahead of two key Senate runoffs in Georgia on Tuesday.

The outcome of the runoff elections will determine which party controls the Senate and could have a major impact on what President-elect Joe Biden is able to accomplish.

The sharp pullback on Wall Street reflected concerns about the recent spike in coronavirus cases in several parts of the world, with a new strain of the virus being detected in the U.S. for the first time.

U.K. Prime Minister Boris Johnson has announced the country will go back into full lockdown until at least mid-February as a result of the new, more contagious variant of Covid-19.

Meanwhile, Japanese Prime Minister Yoshihide Suga is considering declaring a state of emergency in the greater Tokyo area to curb the spread of the coronavirus.

On the U.S. economic front, the Commerce Department released a report showing a continued increase in construction spending in the month of November.

The report said construction spending climbed by 0.9 percent to an annual rate of $1.459 trillion in November after surging up by 1.6 percent to a revised rate of $1.447 trillion in October.

Economists had expected construction spending to increase by 1.0 percent compared to the 1.3 percent jump originally reported for the previous month.

Sector News

Airline stocks moved sharply lower amid concerns about new coronavirus restrictions, resulting in a 5.2 percent nosedive by the NYSE Arca Airline Index.

Substantial weakness was also visible among commercial real estate stocks, as reflected by the 3.4 percent plunge by the Dow Jones U.S. Real Estate Index.

Utilities, transportation and housing stocks also saw considerable weakness on the day, moving lower along with most of the other major sectors.

Meanwhile, gold stocks skyrocketed along with the price of the precious metal, driving the NYSE Arca Gold Bugs Index up by 7.6 percent.

The rally by gold stocks came as the price of gold for February delivery soared $51.50 to $1,946.60 an ounce amid a drop in the value of the U.S. dollar.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Monday, although Japan’s Nikkei 225 Index bucked the uptrend and slid by 0.7 percent. China’s Shanghai Composite Index advanced by 0.9 percent, while South Korea’s Kospi spiked by 2.5 percent.

The major European markets also moved to the upside on the day but closed well off their best levels. While the U.K.’s FTSE 100 Index surged up by 1.7 percent, the French CAC 40 Index climbed by 0.7 percent and the German DAX Index inched up by 0.1 percent.

In the bond market, treasuries bounced back near the unchanged line after seeing early weakness. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, closed unchanged at 0.917 percent after reaching a high of 0.953 percent.

Looking Ahead

A report on U.S. manufacturing activity may attract attention on Tuesday, although trading activity may be subdued as traders await the outcome of the Georgia runoffs.

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