• Thursday was a day of chaos in Washington, a time when the Senate was gathered to certify the election of a new government. Trump supporters forced their way into the rotunda and the chamber in an attempt to derail the certification process.  The tension capped weeks of protestations by Trump and his followers about the legitimacy of the vote.
  • One would have expected the turmoil on the Hill to shift market sentiment in a negative direction, but none of that happened. By the close of the trading, both the S&P 500 and the DJIA were patched at new record peaks.   

Did the market shrug off the insurrection at Capitol Hill?

The results of the November presidential elections are nothing short of history-making. For the first time in a little over a decade, Democrats have control of the Senate, and what a time it is because it is their man in the White House. 

Over the past few months, politicians in Washington have engaged in protracted acts of filibustering while the nation waited for survival checks. Particularly, Republicans have been vehemently opposed to sweeping relief packages to struggling Americans. A prominent Republican in the House accused Democrats of “selective hearing,” referring to their filibustering of the stimulus package to other departments such as Defense. 

As to why the Thursday events at the Capitol left not a dent on the market, the answer comes from another political dynamic. On January 5, Georgians elected two Democrats to represent them in the Senate, handing Dems control of the key institution. According to the market, a win by the Dems implied more and larger stimulus packages.

Further, it seems investors have their eyes on the bigger picture and anything else – like the Thursday insurrection – is noise. But what is this big picture? Democrats have been pushing for $2,000 paychecks instead of the $600, which they consider measly. Now that they have the Senate under their control, prospects of higher liquidity in the economy are higher than ever.

The bull market is holding tight on its winnings

COVID-19 threatened an economic Armageddon in early 2020, and central banks stepped in to stop the mess. The Fed led the pack, where it added over $3 trillion to its balance sheet in the space of three months (between March 2 and June 8, 2020). 

Fed's total assets since 2008 (in millions of dollars)
Figure 1: Fed’s total assets since 2008 (in millions of dollars)

Within this period of the Fed’s generosity, the market has been jumping from one record to another. One is easily amazed by the behavior of the market even when the US was going through the most politically volatile period in recent memory. The market suffered a significant dent in the last three months only during the election week. Afterward, investors were unmoved, even after Trump promised to refuse to concede.

S&P 500 (1-day candles)
Figure 2: S&P 500 (1-day candles)

The MACD on the S&P 500 chart in Figure 2 shows the bulls have the strength to push the rally further and even higher. Also, the momentum is as strong as it has been on the various occasions that the S&P 500 has established new all-time highs.

Conclusion

The American democracy might be under threat, but you know what, no big deal! At least, this is the message coming from the market. It seems investors’ decisions are heavily weighted by stimulus packages, and any chance that another relief package is coming is all it takes for another buying spree to ensue.