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Stocks fell on Monday as investors assessed equity valuations and the outlook for more Covid-19 relief stimulus, along with ongoing political turmoil.
The Dow Jones Industrial Average slid 89.28 points, or 0.3%, to end the day at 31,008.69. The S&P 500 dipped 0.7% to 3,799.61, and the Nasdaq Composite pulled back by 1.3% to 13,036.43. At one point, the Dow was down 265 points.
Wall Street was coming off a solid week to start 2021 as investors looked past a violent siege of the Capitol and focused on the prospect for additional fiscal stimulus after a Democratic sweep of Congress. The S&P 500 climbed for four days straight to a record with a 1.8% gain last week. The Dow and the tech-heavy Nasdaq Composite gained 1.6% and 2.4% in the prior week, respectively, also reaching all-time highs.
Yet the rally in the face of political upheaval and a pandemic has raised concerns that investors have grown too exuberant. Shares of Tesla, for example, were up 25% last week and 747% in the last 12 months. They now trade for around 90-times 2021 cash flow.
Tesla shares were off by 7.8% on Monday. Bitcoin, which has been a symbol of speculation in the financial markets, was back down to $33,000 after trading above $40,000 over the weekend.
"At extraordinarily high valuations is where we are, and it's being supported by massive amounts of stimulus," billionaire investor and DoubleLine Capital founder Jeffrey Gundlach told CNBC's Scott Wapner on "Halftime Report."
"If you go back four decades of stock-market data, there are many valuation metrics that are in the top 1-percentile of overvaluation. So, the thing that's keeping it going, of course, is the Fed with rates at zero and promises to stay at zero," Gundlach added. This "allows for valuations to be record-breakingly high."
Tensions were high in Washington again to start the week as House Democrats introduced an article of impeachment on Monday against President Donald Trump for inciting the mob attack at the Capitol. The lower chamber plans to vote on the article sometime this week.
Over the weekend, House Speaker Nancy Pelosi, D-Calif., said the lower chamber would push for Trump's impeachment if Vice President Mike Pence and the current administration's cabinet balked at removing the president through the 25th Amendment.
"When you listen to the speaker of the House ... basically just saying the president is the most dangerous man, you got a week of danger and the markets don't like it," CNBC's Jim Cramer said on "Squawk on the Street."
For now, the market appears to be looking past it because Congress was able to successfully confirm Biden's election win and Democrats now in the Senate majority are likely to pursue another big stimulus. If these events start to delay or derail those stimulus plans, traders may start to pay more attention.
President-elect Joe Biden pledged Friday a hefty economic stimulus rollout, which he said will be "in the trillions of dollars." More details will follow in a formal announcement on Thursday, six days before he is slated to take office.
"The advance is built on three main pillars: strong corporate earnings, massive stimulus, and vaccine optimism," Adam Crisafulli of Vital Knowledge said in a note. "Stimulus expectations are getting elevated – Biden's plan may be worth several trillion dollars on paper, but what actually gets passed will probably be much smaller."
The need for further stimulus was underscored by an unexpected job loss in December. The Labor Department reported Friday that nonfarm payrolls fell by 140,000 as new lockdown restrictions hammered virus-sensitive industries, marking the first monthly drop since April.