Marius Paun | London, UK | Senior dealer | Thursday, 31st December 2020
True to its recent form, Nasdaq reached a new all-time high at 12,920 on Tuesday and although it closed lower yesterday it remained not far off that fresh record. The rally was driven by news the US Congress finally passed the Covid relief bill worth around $900 billion after months of bickering.
It was signed by the President Donald Trump late Sunday night even though he expressed his unhappiness about the ‘ridiculously low $600 checks’ asking the Congress to increase it to $2000 or $4000 per couple. He also asked the lawmakers to get rid of ‘wasteful and unnecessary items’. By and large, analysts pointed that even if the bill was flawed it was something rather than nothing. Many of the unemployment benefits had expired so it was a welcome financial help for low-income families.
It was reported the $600 stimulus checks went out within days and should immediately start making an impact on the economy. Encouragingly the stimulus might indeed increase from $600 to $2000 if the Congress passes their new bill. The US House of Representatives already passed it on Monday and the Senate is expected to vote on it soon. Even before talks of increased payments, the US Congress was already discussing the chance of another relief bill in 2021. President elects Joe Biden promised to ramp up vaccinations around the country which should start to slow the spread and keep stock markets happy.
As you may remember the important Senate run-off election in Georgia might convince reluctant Senate Republicans to vote in favour of beefed-up stimulus payments. The Democrats are currently leading the polls and need to win both seats up for grabs to command a majority (with the help of Vice President). If they pulled that off it would mean control over Congress together and control of the White House. Under that scenario, the additional fiscal and monetary stimulus would be a near certainty which should be even more good news for US stocks.
We’re almost at the end of 2020. What a year it has been! The real world has faced challenges unheard of but the US stock markets and Nasdaq, in particular, have shown some incredible gains. Year to date, Nasdaq is up more than 40% as tech stocks led the recovery, the S&P is up around 15% with the Dow Jones up over 5%. The small-cap Russell 2000 is up more than 20% for the year, leading the rally in stocks during the last few months.
Meanwhile, the US economy continued its impressive recovery. The final estimate for third-quarter GDP was upgraded to 33.4% form 33.1%, a new record. The Federal Reserve Bank of Atlanta sees the fourth-quarter GDP at 10.4%. Excluding last quarter that would be the highest quarterly growth rate in 36 years. Furthermore, the GDP for next year is predicted to be the best in 38 years. Goldman Sachs GDP forecast for 2021 was increased from 5.3% to 5.8% given vaccines and the relief bill.
We’ve also had record job growth over the last 6 months, 15 years high in home sales as well as an all-time high in retail sales. On top of that interest rates are anticipated to stay near zero for at least 3 years. So even allowing for a rotation into value stocks from growth stocks, it seems tech-heavy Nasdaq has further room to grow?
The chart shows a steady uptrend with bulls firmly in control. The sell-off at the beginning of December was short-lived and represented a good buying opportunity. The price bounced after touching the 21-day moving averages. All the MA continue to point upwards and the price is not too far above them, the testimony of a healthy rally.
The buyers will want to keep the party going in the same manner, rallies but not too steep allowing plenty of breathers/consolidations to build enough tension for the next leg higher. On the downside, bears will want to challenge support around 12,800 marks first which coincides with the 6 days MA. If successful, the downside momentum could attract enough sellers for a push to the next support at 12,670 followed by 12,610.