Reuters
- US stock market climbed despite unprecedented scenes of violence in Washington, DC the previous day, where Donald Trump supporters stormed Capitol Hill.
- Investors have chosen to look ahead to the likely fiscal stimulus under Joe Biden and a Democratic congressman, after the party won two major elections in Georgia.
- Bond yields rose as prices fell, with analysts saying the future is bright for cyclical stocks benefiting from stimulus, growth and inflation.
- Visit Business Insider’s homepage for more stories.
U.S. stock futures rose Thursday as investors looked past the chaotic scenes on Capitol Hill on Wednesday at a Joe Biden government that will have a freer hand to boost the fiscal stimulus after Democrats won two major races in Georgia.
Yields on 10-year U.S. treasury bills moved higher than 1% as investors shifted out of safe haven effects, despite supporters of President Donald Trump storming Congress on Wednesday in an unprecedented spectacle in which a woman was fatally shot .
The market reaction to the violence was subdued, with the S&P 500 and Dow Jones closing higher, but the Nasdaq slightly lower.
All three U.S. major indices would rise slightly at the opening clock on Thursday. S&P 500 futures rose 0.55%, Nasdaq 100 futures rose 0.71% and Dow Jones futures rose 0.36%.
The dollar index made small gains of around 0.16%, but is still trading at its lowest level since early 2018 against a basket of major currencies.
The VIX index – a market-based indicator of investor anxiety – rose more than 10% to about 26% on Wednesday, thanks to tight run-off races in Georgia and unrest in Washington, DC. The index retreated overnight and was last 6.34% lower at 23.48 in the European morning trading.
Analysts said the driving force behind market movements was not the protests, but the Democrats’ victories in Georgia, where Raphael Warnock and Jon Ossoff both defeated Republicans on Wednesday. The victories will hand over Democrats’ control of the Senate via Kamala Harris, under-elected vice-voters.
“The outcome of the Senate means that the so-called ‘blue wave’ scenario has finally come to fruition, albeit through a tortuous journey that has led to a slim Democratic majority in both chambers of Congress,” Jim Reid of Deutsche Bank said in a note.
‘The main implication of this is the prospect of a significantly larger US stimulus package once the president-elect [Joe] Biden comes to his office and provides further support to the reflection trade. ‘
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U.S. government bond yields moved higher as investors predicted that more stimulus would lead to greater growth and inflation. Traders also expected stronger fiscal support would mean the Federal Reserve would have to add less monetary stimulus in the bond markets.
Yields on the standard 10-year treasury, which is reversing the price, rose 1.5 basis points to 1.058% after recently exceeding the coronavirus pandemic last year.
Kristoffer Kjær Lomholt, chief analyst at Danske Bank, said that the Democrats’ victories were ‘positive for reflection trading’. That is, bets on cyclical stocks such as financial and industrial enterprises that underperformed during the coronavirus crisis and that would be strengthened by growth and inflation.
“It increases the chances of further fiscal easing in the short term, but probably also limits how much Biden can increase taxes further. It was the catalyst for the ten-year US treasury yields that moved above 1% for the first time since March.”
Asian stocks climbed overnight thanks to Oanda analyst Jeffrey Halley, a ‘race in cyclicals’. China’s CSI 300 rose by 1.77%, Japan’s Nikkeiclimb by 1.6% and the Australian ASX 200 by 1.59%.
European stocks opened slightly higher on Thursday as investors weighed in on their own domestic problems, namely rising cases of coronavirus and new closures.
The continental Stoxx 600 rose 0.1%, but the UK’s FTSE 100 fell into the red after reaching almost 7% in the first three sessions of the year.
The decline in US treasury yields had a mixed effect on European yields. The British yield for ten years climbed by 1.5 basis points to 0.261%, but the German 10-year yield fell by 0.6 basis points to -0.552%.
Halley said: ‘Markets will continue to focus on potential [US] Democratic agenda, which should generally be positive for cyclical sectors. ‘
UBS analysts said in a statement: “The volatility in the prospects of a unified government will be short-lived and will soon be overshadowed by investor expectations for the decline of the pandemic in the coming months.
“We maintain a positive long-term outlook for US equities in general, and for cyclical and small and medium-sized capitalization in particular, as economic recovery accelerates in the second quarter.”
Read more Wall Street experts call Georgia’s runoff results ‘the first surprise in 2021’. Here’s how 4 of them recommend positioning your portfolio for what might happen next.