Chaos at the Capitol building. A very discombobulated transition from the Trump administration to President-elect Biden’s administration. The coronavirus shattering daily new case counts and deaths while vaccine rollout has been slow. The House of Representatives and, as of the Tuesday, January 5 Georgia runoff elections, the Senate both in Democratic control.
From the outside looking in, you might think that America was teetering on the brink of collapse. And while there are certainly challenges that need to be properly addressed and resolved, you might be surprised to learn that amid all the chaos and uncertainty, the stock market has arguably never been more healthy. In fact, on Wednesday, January 6 – the same day that a pro-Trump movement stormed the Capitol building in Washington D.C. – the S&P closed at a record high.
So what gives?
There’s a lot of factors at stake. Let’s take a look at some of them, why the stock market has remained stable and growing, and why it’s poised to continue its stability in the months ahead.
If you look at the stock market since the coronavirus pandemic began, it’s always jumped when a stimulus package was passed in Congress. And while another stimulus package was recently passed, the market seems to think that the transition to President-elect Biden’s administration and Democrats holding power in both the House and Senate will only lead to more stimulus money in the near term. Outside of average Americans, a bevy of industries also benefit from additional stimulus. Throw this in with the thought that the Federal Reserve won’t have to burden much of the fiscal recovery, and it makes for more attractive trading.
While Biden has put forth a tax plan, the reality is that any widespread changes aren’t likely in the near term as the nation is still on its heels reeling from the coronavirus economic fallout. While Biden has said he wanted to get the corporate tax rate back up in the 28 percent range, it’s unlikely this – or any other significant tax changes – will occur until the recovery is securely in place. If tax changes are to come in the near-term, they’ll likely be small.
Ending the COVID Crisis
Biden plans to introduce a COVID-19 stimulus plan sometime this week that he will make a priority after he is sworn into office. It’s likely to include funds for more testing and vaccination rollout, which he has repeatedly stated is needed. Again, the stock market has always rose based on positive vaccine news. But now that vaccines are here, the race is on to get it to people. The U.S. is significantly behind in its initial goals. A pledge to roll it out quicker and enhance testing is going to help end the public health crisis faster. Such a plan, if deemed effective, is also going to cause the stock market to tick up higher.