US Stock Market Plummets on New Year's Day... Growing Concerns Over Democratic Party's Senate Control

by Paek Jongmin

Published 05 Jan.2021 09:02(KST)

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[Asia Economy New York=Correspondent Baek Jong-min] The U.S. stock market showed a sharp decline in its first trading day of 2021. Concerns that regulatory risks could be highlighted due to the spread of the variant novel coronavirus infection (COVID-19) and the results of the Georgia Senate runoff election are evaluated to have pulled down the stock market on the first day of the new year.

[Image source=AP Yonhap News]

On the 4th (local time), the Dow Jones Industrial Average closed at 32,223.89, down 382.59 points (1.25%) from the previous session, the S&P 500 index fell 55.42 points (1.48%) to 3,700.65, and the Nasdaq index dropped 189.84 points (1.47%) to 12,698.45.

On that day, the U.S. stock market started the first trading day of 2021 on a strong note but soon turned bearish and quickly widened its losses. The Dow Jones index even fell nearly 700 points during the session, deepening the decline.

Unlike the major indices' decline, safe-haven assets such as gold and the fear index called the 'VIX' showed strength. February delivery gold closed at $1,946.60 per ounce, up 2.7% ($51.50). The rise in gold prices is interpreted as a reflection of the preference for safe assets, coinciding with the stock market and the dollar's weakness that day.

The VIX, which reflects market fear sentiment, surged 18.55%, reaching its highest level in two weeks.

Regarding the stock market's weakness that day, some experts interpreted it as reflecting a scenario in which the Democratic Party secures both seats in the Georgia Senate runoff election scheduled for the next day, thereby gaining the majority in the Senate. Polls show a tight competition between Democratic and Republican candidates, making it difficult to guarantee an advantage. On the eve of the election, both President Donald Trump and President-elect Joe Biden visited the state to campaign for their party's candidates.

It is evaluated that concerns have risen that if the Democratic Party controls the Senate as well, legislative and executive powers will be consolidated, potentially expanding tax increases and various regulations. In this case, measures such as large-scale additional fiscal spending for economic stimulus and expanded cash payments to all citizens, advocated by President-elect Joe Biden, could be implemented.

Amid spreading anxiety and a falling dollar, international gold prices showed the largest surge since November last year. February delivery gold closed at $1,946.60 per ounce, up 2.7% ($51.50).

By stock, companies directly affected by COVID-19, such as Boeing and Delta Air Lines, showed notable weakness. Boeing's stock price fell by more than 5%. Apple and Amazon also dropped about 2%.

Electric vehicle companies surged collectively thanks to their 2020 sales performance that met market expectations. Tesla rose 3.42%, reaching as high as $744 during the session. Chinese electric vehicle maker Nio also surged 9.75%.

Chinese state-owned telecommunications companies, which are expected to be delisted from the U.S. stock market, all fell. China Mobile and China Telecom each dropped about 5%. China Unicom also showed a decline of over 3%.