US stocks rallied for the second consecutive day as investors looked past the violent clashes in Washington and focused instead on the prospect of government spending being ramped up.
On Wall Street all three leading benchmarks had hit record highs by lunchtime in New York, with the S&P 500 eventually closing 1.5 per cent higher, the tech-focused Nasdaq Composite climbing 2.6 per cent — its largest upward move in two months — and the Dow Jones Industrial Average up 0.7 per cent.
On Wednesday angry mobs of Donald Trump supporters interrupted the certification of Joe Biden’s election victory in Congress, forcing legislators to abandon the US Capitol building before reconvening in the evening.
“I don’t know what was more astonishing, the scenes on my TV or the fact that equities weren’t heading south,” said Dickie Hodges, a bond fund manager at Nomura Asset Management.
“But it just shows you the sheer weight of money coming into markets, and the fact that everyone is focused on this optimistic narrative,” he added. “No one was actually willing to press the panic button.”
Investors remained focused on the spending plans of Mr Biden, after Democratic victories in Georgia’s run-off elections gave the party control of both houses of Congress in what has been called a “blue wave”.
The sweep of the legislature “has really increased the appetite for risk”, said Natasha Ebtehadj, portfolio manager at Columbia Threadneedle. Equity markets were pricing in better corporate earnings due to the expected economic boost from further fiscal measures, she added.
Mr Biden is expected to expand a $900bn economic stimulus agreed by US lawmakers to help the economy through the pandemic, and push for extra spending on infrastructure, clean energy and education.
“The markets are looking through these dramatic events,” said Andrea Iannelli, investment director at Fidelity International, of the scenes on Capitol Hill. “The assumption is that democratic processes are holding up and that a transition is going to take place.”
The prospect of more stimulus has prompted investors to bet on the Biden administration generating not only economic growth but also inflation. The yields on US government bonds — which this week breached 1 per cent for the first time since the start of the coronavirus crisis — rose 0.04 percentage points to 1.07 per cent.
In another sign investors were looking beyond the threat of a peaceful transfer of power in Washington, the price of gold — a commonly used haven asset — fell 0.2 per cent to $1,914 a troy ounce.
The dollar, as measured against a basket of currencies, rose 0.3 per cent. It remains around its lowest level since April 2018, having been suppressed by ultra-loose monetary policy since the coronavirus crisis began.
Brent crude, the international oil benchmark, was 0.4 per cent higher at $54.52 a barrel.
Stock markets “have been given this quite impressive cocktail of good news about [coronavirus] vaccines, the idea that there will be more fiscal stimulus and continued support from central banks”, said Didier Saint-Georges, managing director of French fund manager Carmignac.
But this bright outlook was “quite extreme”, he added, and ran the “risk that markets are running ahead of themselves”.