The Dow closed at a record high Wednesday as investors shrugged off turmoil in Washington, D.C., that saw protesters swarm the Capitol.
The rally lost some momentum in afternoon trading 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, Mr. Trump riled up the crowd with his baseless claims of election fraud.
The S&P 500 added 0.6% to finish just short of a new high at 3,748, while the tech-heavy Nasdaq lost 0.6%.
“North American equities extended gains on Wednesday despite chaos in Washington, D.C., as protestors stormed the Capitol, delaying the count of electoral ballots following a strong performance for Democrats in Georgia,” TD Securities analysts said in a note to investors after the close of trading Wednesday.
Small-company stocks did especially well as investors ploughed money into businesses that would be winners if Democrats can pump even more financial stimulus into the economy amid rising expectations that the GOP may lose control of Washington.
More stimulus expected
The moves on Wall Street masked even bigger shifts happening underneath the surface as investors jockey to find the winners and losers of a Senate, White House and House of Representatives that may all soon be under Democratic control. The yield on the 10-year Treasury topped 1% for the first time since March, for example.
Stocks of companies that would profit from increased spending on infrastructure were also helping to lead the market. United Rentals, whose catalog includes forklifts and light towers for construction sites, jumped 9% for one of the bigger gains in the S&P 500. Vulcan Materials, which sells asphalt and other construction materials, rose 8.2%.
“More fiscal support forthcoming likely means a stronger economic recovery and markets are pricing that in,” said Brian Levitt, global market strategist at Invesco. “Today is the recovery trade.”
Job growth slowing
“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 on Wednesday underscored how fragile the economy is because of the worsening pandemic. Payroll processor ADP said 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 Labor Department’s more comprehensive report on jobs growth is due on Friday.
The Russell 2000 index of small-cap stocks nevertheless surged 3.3%, much more than the rest of the market. 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.
Big spending plans for the economy could trigger not only stronger growth for the economy in the future but also heavier borrowing by the U.S. government and maybe even inflation. Those factors are helping to push up Treasury yields, and the yield on the 10-year Treasury rose to 1.04% from 0.94% late Tuesday.
Big Tech in crosshairs?
On the other end of the market was Big Tech. A Democratic controlled D.C. could mean tougher regulations are on the way for the group, which already has been facing increased scrutiny. Apple, the most valuable stock on Wall Street, said in a regulatory filing Tuesday that its board regularly reviews the company’s antitrust risks.
Democratic control of Washington could also lead to higher tax rates for businesses, which would crimp profits and add downward pressure on stocks broadly.
Analysts caution that no big changes may ultimately come from Washington given how slim the Democratic majority may be. If the party ultimately wins the second runoff for a Georgia Senate seat, they would have a 50-50 split in the Senate with Democratic Vice President-elect Kamala Harris providing a tie-breaking vote.
“Investors that have concerns today should probably check some of those concerns,” Levitt said. “The first year of this administration is going to be about providing as much support as possible to an economic recovery.”
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