A mob stormed the U.S. Capitol on Wednesday, but investors showed little reaction — lifting the Dow Jones Industrial Average to a record close and showing little appetite for traditional safe-haven assets despite violent scenes that temporarily interrupted the ratification of President-elect Joe Biden’s Electoral College victory.
That’s because the invasion of the Capitol did nothing to change expectations around the near-term political and economic outlook.
Instead, the driving force behind the session’s stock-market gains and other financial-market moves appeared to be optimism over the prospect for another, larger round of aid spending following a Democratic sweep of a pair of runoff elections in Georgia that will give the party control of the Senate as President-elect Joe Biden prepares to take office on Jan. 20. Democrats retained control of the House in the Nov. 3 elections.
“No matter the political consequences of today’s takeover of the Capitol, Wall Street continues to be encouraged by the economic-enhancement possibilities of a Democratic ‘trifecta,’” Sam Stovall, chief investment strategist of CFRA, told MarketWatch in an email after Wednesday’s market close.
Investors have also remained upbeat about the potential for vaccine rollouts to allow a wider economic reopening, despite snags in distribution and worries about a more rapid spread of COVID-19 as a result of new variants.
Stocks were in rally mode before the onset of the violence.
While stocks did pare gains, they finished the session solidly higher. The Dow Jones Industrial Average DJIA, +1.44% rose 437.80 points, or 1.4%, to close at a record 30,829.40 after earlier breaching the 31,000 threshold for the first time. The S&P 500 SPX, +0.57% advanced 0.6% to close at 3,748.14, just 0.2% away from its all-time high finish, while the Nasdaq Composite COMP, -0.61% lost ground to end the day with a loss of 0.6%.
Treasurys, which tend to serve as a haven during periods of unrest and uncertainty, instead saw prices fall, driving up yields. The 10-year yield TMUBMUSD10Y, 1.049% rose 8.6 basis points to 1.041%, finishing above the 1% level for the first time in nine months.
The U.S. dollar, which also tends to find support during periods of chaos, was also largely unfazed. The ICE U.S. Dollar Index DXY, -0.14%, a measure of the currency against a basket of six major rivals, was little changed near 89.41.
It was surprising, however, to see how little the market reacted overall, said Edward Moya, senior market analyst at Oanda.
“Financial markets knew President Trump would not go away quietly, but they didn’t expect this,” Moya told MarketWatch in an email.
Congress was set to resume the certification process, a key element in the peaceful transfer of power, on Wednesday evening.
“In the end, the events at the Capitol will not change the election outcome and likely raise the importance that the Democrats were able to pull off the ‘Blue Wave,’” he said, referring to the sweep of the White House and both chambers of Congress.
Investors, meanwhile, see “significant ramifications” for U.S. policy and the economy as a result of a united government, said Kathy Lien, managing director of FX strategy at BK Asset Management, in a note.
“President-elect Joe Biden will be able to push through more aggressive stimulus packages and fund spending with higher taxes,” Lien said, noting that Sen. Chuck Schumer, who will be majority leader, has deemed the passage of $2,000 stimulus checks to be a top priority for lawmakers.
Meanwhile, investors are playing down worries over potential tax increases as they focus on prospects for immediate stimulus, she said.
Stovall, in a note earlier Wednesday, underlined the market-positive factors associated with a unified government, which he said belied the widely held belief that market participants prefer a divided government.
He noted that all eight Democratic presidents since 1900 have been accompanied by a Democratic-controlled House and Senate, and that the stock market posted above-average performances in the first year of such Democratic “trifectas” six out of eight times, for an average gain of 11.3%.