Armed insurrectionists stormed the Capitol, chasing Congress members into hiding and threatening to hang Vice President Mike Pence and shoot House Speaker Nancy Pelosi. Congress impeached President Donald Trump for the second time. White nationalists promised further acts of terrorist violence. The COVID-19 daily death toll hit 4,000. Payrolls declined. And in response, the markets rose a touch, with the Nasdaq and the Russell index of small-cap stocks hitting record highs.
The violent, if temporary, invasion of the seat of government, it turns out, was not enough to disrupt what Wall Street types are calling the “everything rally,” in which valuations of real estate, cryptocurrencies, commodities, and stocks have surged. As the Capitol rocked, capital shrugged. How can that be?
Political instability is not generally good for markets or economies. In the longer term, the right’s promotion of election interference, antidemocratic policies, inequality, and insurrection—to state the blindingly obvious—is apt to reduce investment in the United States and slow down growth. Dozens of business groups and corporate executives have said as much in the past week, and a number of companies, including Blue Cross Blue Shield and Marriott, have pulled their financial support from the members of Congress who declined to certify the free and fair election held in November.
That said, the insurrection, while terrifying and deadly, was also shambolic and pointless. Trump’s attempt to steal the election failed. Joe Biden is set to become president on Wednesday; Democrats will control the Senate as well as the House. That was the signal the markets seemed to be listening to, dismissing the violence as terrifying noise for now.
At the same time, the government’s policies have set up investors for an extraordinary run. When the coronavirus recession hit, the Federal Reserve dropped interest rates from their relatively low level all the way down to zero, making money cheap and borrowing easy. This move helped distressed corporations pick up inexpensive loans to shore up their operations, as the global markets seized and the economy froze. But it also helped less distressed businesses pad their profits.
Another major factor is stimulus. Congress acted much faster and with much more force to combat the coronavirus recession than it did the Great Recession. In fact, the United States spent more on stimulus last year than nearly any other wealthy nation. Congress’s direct payments to households and its expansion of the unemployment-insurance system buoyed incomes and propped up consumer spending despite the jobless rate’s surge. Many Americans were even capable of saving a bit.
Biden, emboldened by the wins in the Georgia Senate runoff elections, is now pushing for another $1.9 trillion in spending: sending an additional $1,400 to individuals that just received a $600 stimulus check, adding to unemployment-insurance benefits, and expanding help for lower-income families with kids. Those checks and UI payments will mean more money spent at auto dealerships and in grocery stores and on gas, helping explain the market’s enthusiasm.
The prospective end of the pandemic is one more factor driving up valuations. Many months will be needed for a critical mass of Americans to get vaccinated and the economy to fully reopen. But Biden and his team of competent, experienced technocrats are promising to accelerate that process. In their initial economic rescue plan, they are asking for hundreds of billions to spend on vaccines, testing, and the country’s public-health infrastructure. Once the economy has reopened, forecasters expect a burst of pent-up activity: family reunions, vacations, business trips, dinners out, trips to bars and movie theaters and sports stadiums. That will be good for America’s corporations, and their profits.
America’s big businesses are concerned about some headwinds: primarily higher taxes, stricter regulations, and a possible antitrust revival. Still, the prospect of more stimulus and a reopened economy seems to counter them. “We think any [tax] hike would be more limited in scope than either the Democratic Party platform or Biden’s own plan,” Mark Haefele, the chief investment officer at UBS’s global wealth management division, wrote to clients. “Biden’s policies would add stimulus to the economy, on balance.”
Despite all the bloody chaos and pessimism about American democracy, the markets are looking up.