It was a shocking day in American history after a mob of President Donald Trump’s supporters stormed the Capitol, engulfing one of country’s most iconic buildings in chaos and disrupting the electoral vote count.
Urged on by the president, Trump supporters went on a rampage, damaging property and forcing lawmakers to take cover in an unprecedented assault on American democracy. Business leaders condemned the violence, but investors appeared unfazed, and the Dow still managed to end the day at an all-time high.
The Dow climbed 438 points, or 1.4%, while the S&P 500 gained 0.6%. US stock futures are up Thursday, indicating more all-time highs could be on the cards. [The major indexes are all up as of 10:40 a.m., according to Yahoo Finance.]
That disconnect may seem startling. Assessing the mentality on Wall Street, however, there are three main drivers of the performance.
- Faith in the system: The US Capitol is once again secured, and Congress affirmed President-elect Joe Biden’s victory early Thursday morning. Trump said in a statement that “there will be an orderly transition on Jan. 20,” though he remains a hugely unpredictable force.
- Georgia election results: CNN has declared that Democrats Raphael Warnock and Jon Ossoff will win their runoff elections. This hands control of the Senate to Democrats, giving Biden much more latitude to advance his economic agenda, which could boost growth. It also removes a key element of uncertainty.
- The stimulus taps: The biggest factor that’s been driving markets higher since last March despite the pandemic remains intact. Central bank support for the economy shows no sign of waning, giving investors confidence that access to cheap funding is here to stay as the economic recovery enabled by Covid-19 vaccinations gathers steam. Plus, the election in Georgia opens the door for another round of fiscal stimulus in the United States.
“Even as the protesters marched to the Capitol building, stock markets stoically marched higher,” Rabobank analyst Bas van Geffen said. “The rationalization of these moves is a focus on the longer term: with the Democrats now looking set for majority in both the House and the Senate, President-elect Biden will have the Congressional support to implement a new fiscal stimulus package, including new stimulus checks.”
It’s a theme that reigned supreme over the past 10 months: Even in the middle of historic tumult, including a pandemic and extreme instability in the world’s top economy, markets have set records, feeding concerns about a growing divide between Wall Street and Main Street.
That said: This time around, Main Street and Wall Street could both benefit. Following the Georgia elections, Goldman Sachs raised its growth forecasts for the US economy, predicting output will now expand by 6.4% this year, up from 5.9%. That’s based on the assumption that Congress will now be able to pass a $750 billion stimulus package, including $300 billion in stimulus checks.
The pandemic is poised to get worse before it gets better, and the political situation in the United States is generating global alarm. But investors, at least, aren’t panicking.