Nasdaq 100, Dow Jones, S&P 500 Forecasts:
- The Nasdaq 100 could come under fire if Democrats win majority in the Senate
- Conversely, the Dow Jones might receive a relative boost as infrastructure programs become more likely
- Such a relationship could revive the “rotation trade” that markets witnessed in November as the Dow and industrial stocks outpaced high-flying tech leaders
Nasdaq 100, Dow Jones, S&P 500 Look to Georgia Senate Runoff
US indices are off to a bumpy start as they experience considerable volatility in the first trading days of 2021. Widespread lockdowns in Europe due to coronavirus have worked to undermine sentiment, while the appearance of a new and more contagious covid-19 strain domestically has sparked similar concern. Despite the threat of renewed quarantine measures, recent manufacturing data might suggest some portions of the economy have adjusted enough to ward off more drastic disruptions to their business. As a byproduct, the Georgia Senate runoff may become the most important theme for equity markets this week.
Nasdaq 100 Price Forecast
As seen in November, the prospect of a blue wave gave rise to some concern over increased corporate taxes and regulation. The technology sector was the hardest hit by the possibility of Democratic control across the board, which may leave it vulnerable in the days ahead should the Georgia Senate race give Democrats a 50-50 split in the Senate with Vice President-elect Kamala Harris as the deciding member.
Nasdaq 100 Price Chart: 4 - Hour Time Frame (August 2020 – January 2021)
Dow Jones Price Forecast
The Dow Jones, on the other hand, benefitted relative to the Nasdaq in November as the ratio between the two indices narrowed. Alongside a potential increase in corporate taxes, the odds of a rise in infrastructure spending may also increase should both Democratic candidates win in Georgia. Thus, the rotation from the Nasdaq 100 to Dow Jones could return in the next few days – although I am hesitant to suggest it would persist in the medium and longer terms.
Dow Jones Price Chart: 4 - Hour Time Frame (July 2020 – January 2021)
S&P 500 Price Forecast
While the Dow Jones and Nasdaq may have more apparent vulnerabilities to the issues at hand, the S&P 500 might feel some pressure itself should increased corporate taxation become more likely. While the longer-term outlook would remain positive for each of the US indices, price action in the short term is much more sensitive. Elsewhere, the US Dollar may fall further in the event of an effective blue wave.
S&P 500 Price Chart: 4 - Hour Time Frame (August 2020 – January 2021)
--Written by Peter Hanks, Strategist for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
