U.S. Stocks Close at Record Levels

By Anna Hirtenstein and Karen Langley

U.S. stocks ended the first week of 2021 at record levels, as investors looked past political turmoil and signs of economic weakness to focus on prospects for more fiscal stimulus.

Major indexes rallied for much of the week, with the Dow Jones Industrial Average notching three consecutive records, as Democratic victories in Senate runoff races in Georgia raised the likelihood of increased government spending to support the economy.

Friday brought another indication of how the coronavirus has weighed on businesses and workers. The monthly employment report showed the U.S. shed 140,000 jobs in December, ending seven months of job growth.

Nevertheless, the S&P 500 rose 20.89 points, or 0.5%, to 3824.68, while the Dow Jones Industrial Average added 56.84 points, or 0.2%, to 31097.97. The tech-heavy Nasdaq Composite advanced 134.50 points, or 1%, to 13201.98. All three indexes closed at records Friday.

For the week, the Dow industrials gained 1.6%, while the S&P 500 added 1.8%. The Nasdaq Composite climbed 2.4% in the first week of 2021.

"So far investors continue to look beyond the weakness of this report and other economic data because they're confident that more fiscal stimulus is coming," said Michael Arone, chief investment strategist at State Street Global Advisors. "And that as the vaccine gets distributed, that this will only be temporary and we'll be able to push beyond the weakness of this number hopefully in the not too distant future."

The Democratic victories in Georgia this week mean the Senate will be evenly split between the two political parties, with Vice President-elect Kamala Harris serving as a tie-breaker. The outcome has bolstered expectations for fresh stimulus measures to provide support to households and businesses, as the coronavirus pandemic continues to restrict work and social activity.

"We believe that this is a very sweet spot, from a political point of view, for the market," said Stephane Monier, chief investment officer at Lombard Odier. "The new U.S. administration will differentiate itself from the previous one by being consistent, as opposed to unpredictable, with a focus on international cooperation, instead of being isolationist."

The Democrats' narrow majority in the Senate may also limit President-elect Joe Biden's ability to push measures such as higher corporate taxes and increased regulation, Mr. Monier added.

"This is good for risky assets, and especially the stock market," he said.

The economically-sensitive energy, materials and financial sectors were the top-performing groups in the S&P 500 for the week, suggesting investors have been raising their outlooks for the recovery.

The Russell 2000 index of small-capitalization stocks also outperformed, gaining 5.9% for the week.

"Small caps have been undervalued and have higher earnings growth than the large-cap names," said Diane Jaffee, senior portfolio manager at TCW. "They are doing well because the economy is on the mend."

The stock market notched its recent gains despite political unrest in Washington, with rioters breaching the U.S. Capitol on Wednesday after President Trump urged supporters to pressure Congress to overturn Mr. Biden's win.

The coronavirus, meanwhile, continues to spread. The U.S. set a new single-day record for reported deaths associated with Covid-19, with more than 4,000 deaths reported Thursday.

"When you look around, there's a lot of bad news," said Brad McMillan, chief investment officer at Commonwealth Financial Network "You have pandemic case growth still extraordinarily high, you have political turmoil, you have the economy slowing significantly. But at the same time, there's reason to believe if this isn't as bad as it gets, we're at least getting very close, and we can legitimately expect improvement over the next three to six months, big improvements. And that's what the market is seeing."

Among individual stocks, Tesla shares surged $63.98, or 7.8%, to $880.02, rising for an 11th consecutive day. The stock's rally on Thursday allowed Chief Executive Elon Musk to surpass Amazon.com founder Jeff Bezos as the world's richest person.

"What's happening now is you're getting an awful lot of day traders trading into it, and it continues to go higher," said Michael Hewson, a chief markets analyst at CMC Markets. "The electric vehicle space is getting hotter and the Democrats now have a better opportunity to pass some of their green deal, it means more money will be thrown at it."

In bond markets, the yield on the benchmark 10-year U.S. Treasury note rose to 1.105% on Friday from 1.070% on Thursday. Yields rise as bond prices fall.

Overseas, the pan-continental Stoxx Europe 600 rose 0.7% Friday to end the week up 3%.

In Asia, most major benchmarks closed up, ending the week on a high note. South Korea's Kospi index jumped nearly 4% Friday to a record high. Index heavyweight Samsung Electronics leapt more than 7% after forecasting a 25% rise in quarterly operating profit.

Japan's Nikkei 225 index rose 2.4% to hit the highest level since 1990, led by chip maker stocks, after the Japanese government declared a new state of emergency in Tokyo to try to control the spread of Covid-19.

Write to Anna Hirtenstein at [e-mail] and Karen Langley at [e-mail]

(END) Dow Jones Newswires

01-08-21 1750ET