As the world looked on in shock when rioters took over the US Capitol building to prevent Congress from certifying Joe Biden’s presidential win, many people wondered what the impact on the markets and the rest of the world would be. The short answer: not much.
Professor Jannie Rossouw, interim head of the Wits Business School, says it is difficult to make a prediction about what this means for the world and South Africa in particular, as this is uncharted territory.
Bloomberg pointed out that High Frequency Economics, a consultancy producing daily commentary, chose not to publish any market analysis for its subscribers on Wednesday night for the first time since 9/11. The news that Georgia had handed the Senate to the Democrats was greeted by a fall in volatility and a rally for the S&P 500.
The invasion of the Capitol happened with almost two hours of trading left and prompted a sharp rise in the VIX volatility index and a tumble for the S&P 500, but by the close, volatility was back to its earlier level and the stock market had held on to some of its gains.
According to Bloomberg, stocks ended higher for the day and volatility slightly lower, with yields surging on news from Georgia, while barely moving on the insurrection. With only two weeks of the Donald Trump presidency left, the calculation seems to be that the insurrection can be safely ignored.
The recovery for banks was the most dramatic, with banks outstripping the rest of the S&P 500 by more than 30% in three months, getting back all their lost ground, in relative terms, since last March. Banking and financial stocks also saw sharp recoveries across the world, with sharply steeper yield curves that should boost bank profitability.
The Wall Street Journal reported that investors piled into shares of economically sensitive companies and dumped big technology stocks and US Treasuries, betting on a big boost in government spending under a Democratic-controlled Senate.
The Dow Jones Industrial Average, composed mostly of cyclical stocks, jumped 437.80 points, or 1.4%, to 30,829.40, led by shares of banks and manufacturers that have been beaten down during the pandemic. The yield on the 10-year US Treasury note soared above 1% for the first time since March as investors dumped government bonds in anticipation of more government borrowing and higher growth and inflation. Meanwhile, gold fell 2.3%, the biggest one-day loss since early November, as investors retreated from the haven asset.
Before the incident at the Capitol, the Dow had risen as much as 631 points, briefly crossing 31,000 for the first time.
CNN Business also reported that Wall Street shrugged off a shocking day in America’s history on Wednesday with a good day on the stock market. The Dow (INDU) closed at a new all-time high and breached 31,000 points for the first time in its history. The broader S&P 500 (SPX) also ended higher, as the Nasdaq Composite (COMP) closed in the red.
According to CNN Business, investors do not really look at what is happening right now, but look to the future and what it could bring for the companies they invest in, or the economy as a whole.