Why January 5th Could Be a “Breaking Point” for Stocks

Treasury Secretary Steven Mnuchin poses with a fresh sheet of U.S. Dollars.

Stocks opened higher this morning before flattening around noon. Following yesterday’s strong performance, the major indexes need to keep rising if the rally can continue. Otherwise, a January slump could be on its way as equities stall near their all-time highs and investors run out of good news to prompt additional buying.

In terms of headlines, it’s been a slow day already. The top story at the moment concerns Boeing (NYSE: BA), which had its first commercial 737 Max flight several hours ago. The airplane manufacturer spent years attempting to correct the failures that led to two grisly crashes.

Now, American Airlines (NASDAQ: AAL) is flying the 737 Max. United Airlines (NASDAQ: UAL) and Southwest (NYSE: LUV) want to fly the planes, too, in the first half of 2021.

That’s likely a boon for Boeing shareholders moving forward. The stock remains well below its pre-Covid highs.

With this morning’s flight, Boeing’s path to redemption may have begun. Time will tell.

More immediately pressing, however, is the ongoing stimulus package drama. The House passed a proposed $2,000 direct payment increase after President Trump demanded it last week. House Republicans initially shot it down but are now joining the President after several days of deliberation. The Senate – where the GOP holds the majority – initially opposed the $2,000 checks as well, but with House Republicans flipping sides, it may only be a matter of time until Senate Republicans follow suit.

Senate Majority Leader Mitch McConnell has been put in an uncomfortable position as a result. Georgia Sens. David Purdue and Kelly Loeffler, who face an election runoff in just one week, are supporting the payment increase to attract more votes. Republican Sens. Marco Rubio and Josh Hawley feel the same.

That’s not to say the Senate is guaranteed to even vote on the bill, though. McConnell hasn’t said anything about it. He could potentially take up the House bill, attempt to vote on a different one (that may also increase payments), or ignore the issue altogether.

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Some analysts say Trump’s insistence on the $2,000 checks is an attempt at revenge against the GOP, who failed to back the President following the November election. The Senate was nowhere to be seen when possible evidence of voter fraud surfaced, or 11th-hour changes were made to important election laws that allowed numerous unverified votes to be counted.

But none of this will matter if the Democrats win the Georgia runoff on January 5th. If they do, the Senate will go to the Dems. In that case, a whole host of new risks will face the market.

The most important being Biden’s tax plan, which would sink equities via changes to capital gains if the plan is enforced as currently written.  

Short-term, though, the $2,000 checks would almost certainly be approved if the Georgia runoffs go to the Democrats. That should benefit retailers as disposable income surges across the U.S., while the dollar plunges and precious metals surge.

Bitcoin would likely enjoy another bump higher as well.

If the Senate holds firm and rejects the increased payments, however, investors will be watching the Georgia runoffs closely to see if the $2,000 checks will eventually arrive. But in the event that McConnell and Senate Republicans vote yes on the checks, the Georgia runoffs will still be critical due to Biden’s proposed tax plan hanging in the balance.

So, either way, the January 5th trading session is setting up for a major showdown between bulls and bears. It could set the tone for the rest of Q1, and possibly, the first half of the year.

All while the majority of consumers, armed with checks in the $600 – $2,000 range, continue to spend money on non-essential goods.

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