Here's why stocks are at record highs following the Capitol chaos in DC

Michael Nigro:Pacific Press/LightRocket/Getty
  • The Dow Jones industrial average closed at all-time highs on Wednesday and reached a new intraday record on Thursday, despite pro-Trump insurrectionists violently storming the Capitol and disrupting the confirmation of President-elect Biden’s victory,
  • The bullish mood on Wall Street has less to do with the riots and more to do with Democrats winning Georgia’s Senate runoff elections and taking control of Congress.
  • Stocks hinge on the prospects of corporate profit growth. The soft Democratic majority in the Senate lifts Biden’s chances at passing the fiscal stimulus that experts have urged Congress to enact for months.
  • A $US1 trillion relief package could “easily” boost GDP expansion in 2021 by one point to 6%, Michelle Meyer, head of US economics at Bank of America, said. That would all but certainly lift investors’ hopes for near-term profit growth.
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While pro-Trump insurrectionists remained illegally perched on the steps of the US Capitol on Wednesday, the Dow Jones industrial average closed at a fresh record high.

The market uptick has little to do with violence on Capitol Hill. Instead of fearing the chaos and President Donald Trump’s incitement, investors kept their sights set on Georgia’s runoff election outcomes.

Raphael Warnock and Jon Ossoff’s victories in the Senate races push Democrats’ seat count in the body to 50, allowing for Vice President-elect Kamala Harris to break any ties. The soft majority paves the way for President-elect Joe Biden to pass more progressive policy, including fiscal relief meant to drive the US out of the coronavirus recession.

Stocks move — and always have moved — on the prospects of expanding corporate profits. Experts on Wall Street, at universities, and in the Federal Reserve have spent months telling Congress that sweeping fiscal stimulus is necessary to drive a faster and more equitable economic recovery. Climbing stock prices reflect investors’ beliefs that, following Democrats’ wins in Georgia, such a relief package is more likely to reach Biden’s desk.


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Another round of stimulus would be a “game-changer” for economic growth and accelerate the rebound to pre-pandemic levels of activity, Michelle Meyer, head of US economics at Bank of America, said in a Thursday note. The package would likely prioritise another round of direct payments, an extension of federal unemployment benefits, funds for state and local governments, and relief for healthcare workers.

A $US1 trillion relief package could “easily” boost gross domestic product growth in 2021 by one percentage point to roughly 6%, according to the bank. The positive economic impact could be even larger as the estimates hinge on conservative spending multipliers, Meyer added.

Economists at Morgan Stanley and Goldman Sachs similarly linked optimistic GDP projections to Democrats’ wins in Georgia. Credit Suisse raised its S&P 500 forecast on Thursday, saying the increased likelihood of new stimulus in early 2021 can drive the index 12% higher through the year.

Concerns that the Washington riots would create a lasting risk were largely alleviated early Thursday morning. Congress officially certified Biden’s victory after hours of debate and failed efforts to object to electoral college vote counts. Trump pledged to conduct “an orderly transition” soon after, reversing from previous claims that he won the election and would remain in office.

The ensuring of a peaceful transition further augmented bullish sentiments. All three major stock indexes notched record intraday highs on Thursday as investors viewed the certification as a return to business as usual.

“With the political tensions easing, more stimulus expected to help boost the economy, and coronavirus vaccines helping bring a measure of calm to investors and traders, it seems that the market can now focus on earnings season,” J.J. Kinahan, chief market strategist at TD Ameritrade, said.


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