EDITOR'S NOTE

Investors carried last year’s strong momentum into the first week of 2021, with the major averages jumping to fresh record highs.

The Dow Jones Industrial Average and S&P 500 rose 1.6% and 1.8%, respectively, for the week. The Nasdaq Composite outperformed over that time period, jumping 2.4%. The Dow broke above 31,000 for the first time ever during the week, while the S&P 500 and Nasdaq topped 3,800 and 13,000, respectively.

Those weekly gains came as the prospects of additional fiscal stimulus improved with Democrats winning both runoff elections in Georgia to secure a slim Senate majority. Increased hope for new government aid also helped investors look past the riot in the U.S. Capitol building in Washington.

“More fiscal stimulus and a potential infrastructure package are now on the table,” strategists at MarketDesk Research wrote in a note. “All of this should be enough to keep the market trending higher. However, it will likely be a bumpy ride. Frothy market sentiment creates a significant risk, and we would not be surprised to see a swift selloff in either January or February.”

In his column this week, Mike Santoli breaks down all those signs of frothy sentiment (Tesla, bitcoin, etc.) and looks at whether they mean the market is near a top.

Heading into the new week, markets will stay laser-focused on the possibility of more fiscal aid, Patti Domm writes. Additionally, JPMorgan Citigroup and Wells Fargo will kick off the corporate earnings season.

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