Yesterday, global markets shrugged off the turmoil as Trump supporters stormed the capital in an attempt to disrupt Congress’ electoral count.
If you were to check the stock market’s performance yesterday, you might have thought it was a normal day. Most major U.S. indexes gained on Wednesday, with those linked to the Dow Jones Industrial Average (NYSEARCA: DIA) rising 1.5% and the S&P 500 (NYSEARCA: VOO) increasing over 1%, whilst the Nasdaq 100 (NYSEARCA: QQQ) closed in the red.
So how did Wall Street manage to reach new heights despite all the trouble in Washington? Global markets showed resilience after a day of violence, with many investors firmly focused on the prospect for more stimulus support and the likelihood that calm will prevail as Joe Biden takes up his seat as President. Investors piled into shares of economically sensitive stocks as they anticipated higher government spending under a Democratic-controlled Senate.
A Democrat sweep means the chamber will now be split and the tie-breaking vote will go to Vice President-elect Kamala Harris, effectively giving President-elect Joe Biden’s party sway over Congress. As a result, Biden will now find it much easier to get his economic agenda passed.
What will a Democrat-controlled Senate mean for the market?
Many are hoping that President-elect Joe Biden makes good on his promise that $2,000 stimulus checks would “go out the door” if Democrat representatives Raphael Warnock and Jon Ossoff were to win. A blue wave will likely increase government debt but, hopefully, it will also boost the economy.
Biden has made further guarantees aimed at creating more jobs, including investments in infrastructure and clean energy which boosted stocks in the industrials and materials sectors. Furthermore, promises of higher interest rates also sent banks and financial institutions shares climbing yesterday which were previously beaten down due to the pandemic.
Biden’s goal of cracking down on Big Tech by introducing tougher regulations meant technology companies felt some pain yesterday. The Nasdaq futures, which primarily represents tech stocks, were down slightly Wednesday morning as Apple, Amazon, Alphabet, and Facebook dipped slightly while the broader market rallied. Shareholders seemed worried about the likelihood of more regulations for big tech firms, higher corporate taxes, and increased antitrust scrutiny. However, given the party’s narrow majority in both chambers, it remains unclear if all of these actions will materialize. Some experts predict that the initial reaction in the tech sector to the Senate results yesterday was more of a growth-into-value scenario rather than a tech regulation story, as there was arguably greater appetite for tech regulation in the Republican party.
On the other hand, there are still many challenges facing the economy in 2021. The prospect of tougher restrictions brought on by increasing numbers of coronavirus infections as the U.S. passes 21 million cases is a worrying issue, not to mention the uncertainty about future unrest in the country when the administration takes control next month. Furthermore, a Democratic win might still spark a major upheaval in the market if and when higher corporate taxes are introduced.
Investors bet on growth
Recently, many investors were already feeling slightly better about the economic outlook thanks to the roll-out of vaccines and now they are likely to get even more growth-friendly spending from the government.
Wall Street is betting on America overcoming civil unrest, as it has done so many times over the course of its history. If investors accept the long-term view that the next administration is expected to make good on its promises to help American businesses, the market should stay strong.
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