U.S. stocks powered higher Wednesday, after Democrats scored at least one U.S. Senate seat in Tuesday’s run-off elections in Georgia, boosting the prospect of more government spending to aid the economic recovery, and as Congress looked posed to certify Joe Biden’s victory over President Trump.
How are stock benchmarks performing?
- The Dow Jones Industrial Average DJIA, +2.01% was up 614 points, or 2.0%, to 31,002 after scoring a record 31,022.65 level.
- The S&P 500 index SPX, +1.45% gained about 54 points, 1.5%, to trade near 3,780.
- The Nasdaq Composite index COMP, +0.59% was 80 points higher, up 0.6% near 12,900
- The small-cap Russell 2000 RUT, +4.89% gained 5% to about 2,078.
On Tuesday, stocks finished higher:
- The Dow rose 167.71 points, or 0.6%, to 30,391.60
- The S&P 500 added 26.21 points, or 0.7%, to 3,726.86
- The Nasdaq Composite Index gained 120.51 points, or 1%, to trade at 12,818.96.
- The Russell 2000 index RUT, +4.89% rose 1.8%.
What’s driving the market?
Politics dictated Wednesday’s trading action after two key runoff elections for U.S. Senate seats in Georgia roiled parts of the market, sparking a rotation into downtrodden stocks hit hard by the economic crisis sparked by the pandemic.
The stock roration came as Democrats moved one step closer to control of both houses of Congress, improving the chances that President-elect Joe Biden may be able to implement his legislative agenda.
Democrat Raphael Warnock defeated incumbent Republican Kelly Loeffler for one U.S. Senate seat and Democrat Jon Ossoff held a narrow lead over Republican Sen. David Perdue in the other race, according to the Associated Press.
A Democratic sweep of both seats in Georgia would give the party control of the Senate as Vice President—elect Kamala Harris would cast tiebreaking votes as the chamber’s president.
A joint session of Congress also was poised to officially confirm President-elect Joe Biden’s victory over President Donald Trump Wednesday, following a deeply divisive election and despite the prospect of objections from a majority of congressional Republicans.
Read: McConnell defends election results as GOP splits over Congress confirming Biden victory
Vice President Mike Pence said in a statement ahead of the 1 p.m. Eastern proceedings that he lacked the power to reject the Electoral College votes, calling his role in the join session “largely ceremonial.” Protesting Trump supporters caused police in D.C. to order the evacuation of two buildings on Capitol Hill.
“The key is the possible change in the landscape of political power in Washington, D.C. and what that will mean for spending,” Jeanette Garretty, chief economist at Robertson Stephens Wealth Management, told MarketWatch.
“Investors are most immediately saying this is going to mean more money spent in support of individuals and a greater likelihood of an infrastructure deal,” she said. “But buried in all this is probably also an assumption that it will be easier to get money to states for a more efficient rollout of the vaccine.”
Technology stocks XLK, -0.24% gained, but less than value-oriented stocks, on expectations that a Democrat-controlled Congress could lead to higher taxes and tighter regulations of internet based businesses.
Read: Dow’s surge takes it above milestone at 31,000 at fastest rate in 2 years
U.S. bond yields were also rising, weighing on the broader market, as fixed-income investors wager that a “Blue Wave” in Washington would increase government spending to combat COVID-19’s impact on the economy.
Tech stocks led gains in the past year, partly as the low interest rate environment helped justify owning pricier stocks that don’t pay rich dividends, but the 10-year Treasury note Wednesday climbed over 1%, near its highest since March.
“If technology’s doing really well, we’re worried about the virus. If technology is not doing well, we’re more excited about re-opening,” Paul Nolte, portfolio manager at Kingsview Investment Management, said in an interview. “Today small-cap stocks, international stocks, even the yield curve is indicating more economic growth.”
“We’re expecting more of a reflationary trade in general,” Nolte said, “with growth taking a back seat to everything else. The fourth quarter was a taste of that and I think that will continue in fits and starts. We do expect a back-and-forth as we figure out how the economy opens and how much fiscal stimulus actually helps.”
The balance of power in the Senate is now in Democrats’ favor, “which leads naturally to the assumption that there will be another slug of fiscal stimulus to come early this year,” wrote Aegon Asset Management’s fixed-income manager Nick Chatters in a Wednesday note.
But it’s important to keep some perspective on bond yields, Chatters added, noting that the central bank likely will aim to keep yields in check.
“Whilst it is interesting to talk about fiscal stimulus, and this is important for growth, the main driver of government yields remains the policy rate,” Chatters said. “The channel to higher policy rates is via employment and inflation in the US, and this channel has long and uncertain lags. So, for treasuries, this is important, but not as important as the Fed.”
Bank stocks XLF, +5.12% were rising Wednesday as the yield curve, the spread between short-term bonds and their longer-term counterparts, was widening , a move that tends to be good for the business models of financial institutions.
Economic data published Wednesday morning gave a grimmer view of the U.S. economy than analysts expected. The Automatic Data Processing report on private-sector employment showed the first drop in jobs since April. Private-sector jobs fell by 123,000, ahead of the more closely followed Friday employment report from the Labor Department.
Meanwhile, the U.S. IHS Market service sector purchasing managers index for December fell to 54.8 in December, down from 58.4 in November, signaling a slower expansion amid a surge in coronavirus cases. However, factory orders rose for a seventh month.
On the coronavirus front, the U.S. counted at least 238,763 new cases on Tuesday, and at least 3,648 people died, according to a New York Times tracker. In the past week, the U.S. has averaged 219,650 cases a day.
Minutes of the Federal Reserve’s last meeting, which may give some insight into monetary policy, are due to be released at 2 p.m. ET.
See also: Here’s what a ‘blue wave’ forming in Washington means for markets
Which companies are in focus?
- Shares of JPMorgan Chase &Co. JPM, +5.40% were 5.5% higher as investors bet on a steeper yield curve. Shares of Bank of America Corp BAC, +7.62%. gained 7.5%.
- Moderna Inc. MRNA, +6.46% shares climbed 6.2% after a European regulator approved its COVID-19 vaccine.
- Tech giants lost ground: Amazon.com Inc. AMZN, -1.20% shares were down 1.3%, Facebook Inc. FB, -1.65% shares lost 1.9%, and Alphabet Inc. GOOG, -0.33% shares fell 0.5%.
- Clean-energy companies like SolarEdge Technologies Inc. SEDG, +12.58% and TPI Composites Inc., TPIC, +8.47% which makes wind-power parts, also surged.
- Tesla Inc. TSLA, +5.10% shares were 5% higher, near $771, as Wall Street analysts remained divided over whether the company’s price target should be closer to $800 or $200.
Read: Here’s what a ‘blue wave’ forming in Washington means for markets
What are other markets doing?
- The 10-year Treasury note TMUBMUSD10Y, 1.056% surged above 1% for the first time since March, up about 9 basis points, as traders bet on stronger inflation and more debt issuance, both of which would erode the value of outstanding bonds. Bond yields rise as prices fall.
- Oil futures were higher Wednesday, after Saudi Arabia surprised the market by cutting production. Crude for February delivery CLG21, +1.76% was up 1.6% to $50.74.
- Gold futures GCG21, -2.11% settled 2.3% lower at $1,908.60 as bond yields gained.
- The pan-European Stoxx 600 Europe index SXXP, +1.36% finished 1.4% higher, while London’s FTSE 100 UKX, +3.47% surged 3.5% after Moderna’s coronavirus vaccine got the green light from a European regulator.
- In Asia, Hong Kong’s Hang Seng Index HSI, +0.15% rose 0.2%, while the Shanghai Composite SHCOMP, +0.63% gained 0.6% and Japan’s Nikkei 225 NIK, -0.38% fell 0.4%.
- The ICE U.S. Dollar Index DXY, +0.07% a measure of the U.S. currency against a basket of six major rivals, gained less than 0.1%.
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