What goes up, must come down, right? Well, eventually, but it doesn’t sound like that will happen any time soon. Thursday saw the Dow Jones Industrial Average, the NASDAQ and the S&P 500 all reach record highs. Even Bitcoin pushed past the $40,000 for the first time in its history.
One would think, given all the chaos that ensued in the capital of the United States of America on Wednesday that markets would be in turmoil. In reality, it’s the polar opposite, and there many reasons for that. Given the worldwide pandemic, and an extremely depressed job market, it would seem that we’re heading towards a bear market, but it’s not here yet.
It’s certainly a time where many would be looking to get cash for annuity payments and potentially liquidate their assets. More and more Americans need money for basic bills and healthcare/medical costs. As indices keep climbing higher and higher, one would think that there just isn’t a lot of money still left out on the sidelines. We definitely know this- now more than ever, the stock market is definitely not the economy, and vice versa. The DJIA soared on a day that the nation was crumbling.
The markets are up because now we have stability, or the appearance of it. Obviously what transpired at the Capitol on Wednesday flies in the face of that, but that’s focusing n the present, while markets tend to be more future oriented. When you look to the future, regarding government leadership on the Federal level, we have certainty. The U.S. Congress certified the results of the Electoral College on January 6, and Joe Biden will be sworn in as the 46th President of the United States on January 20. By Wednesday, midday, the special runoff elections for U.S. Senate, in Georgia were settled, and with it, the upper chamber of Congress.
With the victories by Jon Ossof and Rev. Raphael Warnock, we now know that the Democrats will control the Senate, supplementing the control that they already had in the House of Representatives. They control the legislative branch now and will assume the executive branch in less than two weeks. One party rule means you won’t have a government in gridlock, and you can anticipate some actual legislation really getting done now.
The market reaction is due to the greater sense of certainty. You know what you’re going to get, and that’s bullish. It overrides any kind of opposite sentiment, the old stereotype that Democratic rule means higher taxes, more regulation and with it, a market downturn. Obviously, the dow isn’t worried about that, and it’s probably because the concerns about the next financial stimulus package take greater priority.
The current Senate Majority Leader, Mitch McConnell, was blocking the stimulus package, as he takes pride in blocking legislation. Now he’s in the minority, and Biden said, on the eve of the run-offs that the $2,000 checks in the next round of stimulus will be going out sooner, rather than later, once his party takes over.
The economic booster shot will be good for the stock market, at least in the near term. The correction, or pullback, or crash is inevitably coming, as nothing keeps going up forever, but it won’t be tomorrow or next week.
Paul M. Banks runs The Sports Bank, partnered with News Now. Banks, the author of “No, I Can’t Get You Free Tickets: Lessons Learned From a Life in the Sports Media Industry,” has regularly appeared in WGN, Sports Illustrated, Chicago Tribune and SB Nation. Follow him on Twitter and Instagram.
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Filed under: Policy