U.S. stocks rose to record heights Wednesday even as scenes of chaos played out in Washington, as investors piled into sectors of the market that could benefit from the Democratic Party’s tighter grip on legislation in Congress.
Interest rates also spiked, as inflationary expectations were heightened by the Democrats taking a surprise sweep in runoff elections in the former Republican stronghold of Georgia. The benchmark 10-year U.S. Treasury yield topped 1 per cent for the first time since March, on bets that a Democrat-controlled Senate would lead to more fiscal stimulus and infrastructure spending.
Canadian government five- and 10-year bond yields rose as well, but stayed below levels reached in December. The TSX, meanwhile, closed just 116 points away from February’s all-time peak, with cannabis, financials and renewables sectors having a particularly buoyant session.
Raphael Warnock, a Baptist preacher at the historic church once led by the Reverend Martin Luther King Jr., beat Republican incumbent Kelly Loeffler in Tuesday’s election to become the first Black senator in the history of the Deep South state.
In the other race, Democrat Jon Ossoff beat Republican incumbent David Perdue.
A win by both Democrats gives the party narrow control of the Senate, increasing the odds of passing legislation to lessen the economic fallout from the coronavirus pandemic, as well as an infrastructure spending package, according to Guy LeBas, chief fixed income strategist at Janney Capital Management in Philadelphia.
“With those programs two things happen,” he said. “One, there’s a chance that greater fiscal spending generates inflation. Two, there’s a high probability of greater long-duration Treasury supply. The usual supply-demand dynamics in the market mean that greater supply will push yields a little bit higher.”
New York Senator Chuck Schumer on Wednesday said sending most Americans $2,000 checks would be a top priority in the new Congress. Still, with the Senate divided down the middle, compromise with Republicans and rightward-leaning Democrats will be necessary for Biden to make substantial changes.
Tony Rodriguez, head of fixed income strategy at Nuveen in Minneapolis, said he does not see the 10-year yield topping 2% this year.
“There’s still growth challenges out there. The first quarter is going to be bumpy,” he said pointing to a surge in coronavirus cases and slow rollout of vaccines.
Wall Street pared some of its earlier gains, and the tech-heavy Nasdaq index closed lower, after swarms of protesters stormed the U.S. Capitol as they sought to force Congress to undo President Donald Trump’s election loss to Joe Biden. Investors in big technology stocks underperformed throughout the session on fears of increased regulatory scrutiny of technology mega-caps under Democratic control.
“People are focused on the stimulus that will come,” said Tom Martin, senior portfolio manager, at GLOBALT Investments in Atlanta. “The question is how big will that be and what would be contained in it. But anytime you have additional money to be spent, that’s a positive for the markets.”
The Dow Jones Industrial Average rose 437.8 points, or 1.44%, to 30,829.4, the S&P 500 gained 21.28 points, or 0.57%, to 3,748.14 and the Nasdaq Composite dropped 78.17 points, or 0.61%, to 12,740.79.
The S&P/TSX Composite Index closed up 145.60 points, or 0.82%, at 17,828.11. Financials, which benefit from higher interest rates, were among the biggest sector gainers, rising 1.93 per cent. Health care led the nine major sectors that moved higher on the belief that incoming U.S. President Joe Biden would be more open to legalizing cannabis. It surged 5.9 per cent with shares of Cronos Group Inc. up 14.2 per cent, Aphria Inc. up 11.8 per cent, Canopy Growth Corp. up 11.5 per cent.
Oil prices rose to their highest levels since February after Saudi Arabia announced a big voluntary production cut earlier in the week, and on a steep fall in U.S. crude inventories.
Futures contracts pared gains in thin post-settlement trade, however, after protesters stormed the U.S. Capitol building.
U.S. West Texas Intermediate futures settled 70 cents higher, or 1.4%, at $50.63 a barrel. The contract touched $50.94 a barrel, its highest since late February.
With files from Reuters
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