Blogs

Let’s check all the key facts from the day and see what was the reaction of the market?

It was flabbergasting. A rampaging mob in the halls of Congress wasn’t enough to stop the American stock market. The market was roaring gains, even as the rioters — incited by the president of the United States — stormed the Capitol and asked the members of Congress to flee and vacate the space.

Further, the rally was continued and Congress resumed the counting of the electoral vote and declared Joseph R. Biden Jr. as the nation’s 46th president. And the party was still going on Friday, despite a Labor Department report showing that employers cut 140,000 jobs in December, the first drop since the spring and an ominous sign for the overall economy

This is considered as the worst stretch as per the analysis reports tallied by the economic indicators after the coronavirus death cases in the United States.

Yet after a year in which the S&P 500 rose more than 16 percent — despite a calamitous drop in March — the stock market has managed to post improbable gains.

Now the valid question arises that what led to the stock market’s splendid disregard for so many dismal, even apocalyptic, events?

The rally simply reflects the greed of bullish investors and has led to the following analysis of the current situation:

1. Interest rates are extraordinarily low. Although the yield on 10-year Treasury notes has risen lately, the Federal Reserve and other central banks have said they are determined to keep short-term rates low, and when rates are low, stocks and other risky assets are comparatively attractive.

2. The pandemic is the main cause of global economic troubles and it will eventually end. With vaccinations underway, Wall Street hopes that economic growth in most regions and sectors will surge later this year, along with rising corporate profits.

3. The chances of at least some further economic stimulus have increased. By sweeping the two contested Senate seats in Georgia, Democrats have gained a tenuous hold on both houses of Congress as well as the presidency. President-elect Biden will very likely be able to deliver more aid to people in need and to local governments, which is expected to increase economic growth.

4. Truly sweeping legislative changes will be difficult, if not impossible, given the Democratic Party’s razor-thin margin in the Senate and the reduced majority in the House. While some increased spending is likely, this shaky grip on power implies that big tax increases on wealthy investors and rich corporations may not happen soon.

5. The election may have delivered something close to a Goldilocks alignment for the stock market. Mr. Biden’s cabinet picks so far suggest that he will govern as a centrist, and the market historically has fared well under Democratic presidents who do not have sweeping control of Congress. The possibility that the Biden administration will usher in a more efficient and inclusive government, with more spending and only moderate changes otherwise, is seen as a sweet outcome for stocks.

All this analysis gives us a conclusion that the halls of Congress are not impregnable. It may not be obvious right now, but the stock market is at least as vulnerable.