Markets rally amid chaos in DC, stimulus hopes
Dow Jones closes at another record high as traders focus on the future under Biden
Wall Street rallied Wednesday on expectations of more stimulus for the economy, though the enthusiasm was dampened by chaotic scenes in the nation’s capital.
The S&P 500 rose 0.6% after having been up 1.5% earlier, while the Dow Jones Industrial Average closed at a record high. Investors piled into stocks of smaller companies, banks and other businesses that would be winners if Democrats push through more economic aid for hurting Americans and businesses. The yield on the 10-year Treasury topped 1% for the first time since March.
The rally lost some momentum in the afternoon after the U.S. Capitol building went into lockdown as supporters of President Donald Trump broke through barricades and entered the building following clashes with police. Both houses of Congress abruptly went into recess, interrupting debate over the Electoral College vote that gave Joe Biden the presidency. Earlier, Trump riled up the crowd with baseless claims of election fraud.
Stocks got off to a strong start after Democrats won one of the two runoff elections in Georgia. The second race was also called for them later in the day, handing the party of President-elect Biden control of the Senate.
Traders chose to look ahead to later this year, when they expect the prospects for the economy to brighten with the rollout of COVID-19 vaccines and the potential for increased spending on infrastructure and other areas under a Biden administration.
“The market came off the highs by a decent amount, so there was some impact,” said Nate Thooft, head of global asset allocation at Manulife Investment Management. “The markets are taking it in stride because they think it’s a temporary issue that will ultimately be resolved.”
The S&P 500 rose 21.28 points to 3,748.14. The Dowgained 437.80, or 1.4%, to 30,829.40. The index had been up 631 points. The techheavy Nasdaq composite shed early gains as investors shifted away from the winners of the stay-at-home economy of the pandemic and rotated into companies whose profits would benefit most from a healthier economy. The index fell 78.17 points, or 0.6%, to 12,740.79.
“This is just a market taking into account the likely outcomes from what happened in the election,” said Andrew Mies, chief investment officer at investment advisory firm 6 Meridien. “You have the recognition that the Democratic agenda is probably much more mainstream than people feared.”
A report Wednesday underscored how fragile the economy is because of the worsening pandemic. Payroll processor ADPsaid private employers cut 123,000 more jobs last month than they added. It was much worse than economists’ expectations for job growth, and it was the weakest such report since April.
The Russell 2000 index of small-cap stocks nevertheless surged 78.81 points, or 4%, to 2,057.92, a record high. Another round of stimulus for the economy could benefit smaller companies in particular because they tend to have smaller financial cushions to survive long-term downturns.
Stocks of companies that would profit from increased spending on infrastructure also helped lead the market. United Rentals, whose catalog includes forklifts and light towers for construction sites, jumped 8.9%.