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U.S. stocks saw their sharpest drop in weeks on Monday, with investors facing concerns around the potential for borrowing costs to rise, the spread of COVID-19 and the slow pace of the vaccine rollout.

To end 2020, the markets finished at or near records: The Dow added 1.4% in the final week of the year, 3.3% in December, 10.2% in the fourth quarter and 7.3% on the year. The S&P 500 rose 1.4% for the week, 3.7% in December, 11.7% in the fourth quarter and gained 16.3% for the year.

The tech-heavy Nasdaq Composite Index saw its best annual return since 2009, rising 43.6% in 2020, aided by a 0.7% rise in the final week of 2020, a 5.7% in December, and a 15.7% in the final three months of last year.

Stocks were under selling pressure as investors worried about the potential for U.S. rates to move higher as the American economy looks to recover from the pandemic.

“What I think is taking place is the 10-year Treasury break-even rate has exceeded 2% for the first time in more than two years,” said Kent Engelke, chief economic strategist, Capitol Securities Management, pointing to the closely watched gauge of what holders of Treasury inflation-protected securities anticipate inflation will average over the next decade.

“Every selloff since 2009, except for March, has been because of higher rates,” Engelke said, adding that Monday’s climb in inflation expectations is being driven by the COVID-19 vaccine rollout, massive amounts of stimulus from the federal government and the potential for more spending from a Biden administration.

“In other words, good news might be bad.”

But on Monday, Chicago Federal Resere President Charles Evans said it likely will take years to get average inflation up to 2%, which means monetary policy will be accommodative for a long time, in a speech at the annual meeting of the American Economics Association. Evans said that Fed officials shouldn’t settle for just getting inflation slightly above 2% if it wanted to achieve its 2% average inflation target.

Meanwhile, the global tally for confirmed cases of the coronavirus that causes COVID-19 rose above 85 million on Monday, according to data aggregated by Johns Hopkins University, while the death toll rose above 1.8 million. Some experts warned that the COVID data could be undercounted because staffing at many centers is reduced.

The rapid spread of a variant of the deadly pathogen that was first reported in Britain has caused some concerns among public health experts, but the stock market thus far hasn’t dramatically reacted to the mutation of COVID-19. New aggressive variants in South Africa also raised anxieties.

“The parabolic rise in new cases seems to be leveling off, a sign that perhaps the fall surge is running its course. But the economic impact will remain for a few more months at least,” said James Meyer, chief investment officer at Tower Bridge Advisors.

Still, Meyer also expects markets to look past the pandemic’s toll and focus on the distribution of COVID-19 vaccines, which has come under scrutiny as the pace of the rollout has fallen short of earlier forecasts.

Video: CNBC Markets Now: December 31, 2020 (CNBC)

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U.S. vaccine czar Moncef Slaoui on Sunday said that the U.S. could increase its vaccine rollout by giving out half doses of the medication developed by Moderna

Wall Street also is keeping an eye on Georgia’s as runoff elections on Tuesday in which two U.S. Senate seats have the potential to inject fresh volatility into markets, particularly if the outcome sparks political turbulence in Washington around recent fiscal spending measures and easy-money policies out of the Federal Reserve.

Some market participants say any complacency about the runoff among investors might be misplaced, namely if Democrats win both Senate seats and help President-elect Joe Biden reverse the corporate tax cuts of 2017, which could put company earnings and stock prices under some pressure.

“Anticipating the policy agenda of the incoming Biden administration is a key focus for investors in the new year,” Jason Pride, chief investment officer, private wealth at Glenmede Investment Management wrote in a team strategy note Monday. “If the GOP wins just one seat, they will likely stonewall some of Biden’s more ambitious proposals, but a Democratic sweep of both elections might give the incoming administration free rein on their policy agenda.”

Read: Why the Georgia runoff elections for the U.S. Senate could turn into a ‘big deal’ for markets

Check out: U.S. political polarization presents biggest ‘risk’ to the world in 2021: Eurasia Group

Investors saw fresh manufacturing sector data in Asia and Europe that was better than expected, reflecting improvement from the stultifying levels of economic expansion prevalent during the pandemic, according to surveys of purchasing managers for December.

In U.S. economic data, the final IHS Markit manufacturing survey for December was upgraded to a reading of 57.1, compared with an initial reading of 56.5. Construction spending rose 0.9% in November.

In addition to Evans, investors also will watch for speeches from a number of Fed officials, including Atlanta Fed President Raphael Bostic, and Cleveland Fed President Loretta Mester, who will speak at an annual meeting on the post-pandemic economy hosted by the American Economics Association.

Shares of Tesla Inc. are on pace to close above the $700 billion market cap milestone for the first time, with the stock price needing to close at or above $738.474, according to Dow Jones Market Data.

Brookfield Property shares were in focus after parent company Brookfield Asset Management offered $5.9 billion to buy out public shareholders in the entity for $16.50 per unit. Brookfield is a large, global holder of office properties and shopping malls.

Teledyne Technologies Inc.  plans to acquireFlir Systems Inc.   in a cash-and-stock deal valued at about $8 billion. Teledyne was down 7.8%.

Health care insurer Centene Corp.   said Monday it has agreed to acquire Magellan Health Inc.  for $95 a share, in a deal with an enterprise value of $2.2 billion. Centene Corp. shares were up 1.6%.

Dentsply Sirona Inc.  shares gained 2.5% after it announced its acquisition of Byte, a privately owned clear dental-aligner provider, in an all-cash deal valued at $1.04 billion.

Shares of U.K. gaming company Entain  jumped 25% after rejecting the proposed 1,383 pence per share bid from MGM Resorts that valued the company at £8.09 billion.

The 10-year Treasury note yield was virtually flat at 0.92%. Bond prices move in the opposite direction of yields.

February U.S. benchmark crude futures were down 1% to $48.02 a barrel, while gold settled 2.7% higher at $1,946.60 an ounce.

The dollar was flat against its major rivals, based on the ICE U.S. Dollar Index.

The pan-European Stoxx Europe 600 index closed up 0.7%, and the U.K.’s FTSE 100 climbed 1.7%. The Shanghai Composite and Hong Kong’s Hang Seng index both close 0.9% higher, while Korea’s Kospi surged 2.5%.

Mark DeCambre contributed reporting

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