(Bloomberg) – U.S. stocks resumed last week’s uptrend, advancing at the opening of futures trading in New York on Sunday night as traders pushed for bets that President-elect Joe Biden would have a more stable administration of America Economy will bring.
The bulls started where they left off in the best week for U.S. stock indices since April, undaunted by some of the highest stock valuations in two decades and the resurgent coronavirus. In four of the last five days, the S&P 500 is 2% below the record it set in early September.
Risk markets kept finding something to celebrate in a chaotic final week of the electoral process as odds shifted from a blue wave to Donald Trump’s favor and then to Biden, who, amid signs that his party will not take over the Senate, when declared victorious. The resilience of the S&P 500 is all the more impressive when the meter has more than 27 times the annual profit. That valuation has practically no precedent since the dot-come bubble.
“There will likely be more tax support. It may not be the oversized fiscal package that the Democrats envisioned, but it will likely be big enough to add an extra boost to the economic recovery, ”Invesco strategists, including Brian Levitt, wrote in a note. “Paradoxically, a more modest budget can serve to lengthen market and business cycles as inflationary pressures that predict Fed tightening and the end of cycles are unlikely to advance.”
Contracts for the S&P 500 increased 1.5% from 8:06 p.m. in New York. The underlying index rose 7.3% last week, its largest increase since April. The Nasdaq 100 futures rose 1.9% while the Dow Jones Industrial Average contracts rose 1.2%.
With the chances of a split government, investors saw hopes that Congress would pass a billions of dollars in spending to stimulate the economy. However, the cops reached out to the Federal Reserve and Chairman Jerome Powell for further support that was vital in recovering from the pandemic-induced slowdown.
Powell reassured markets during last week’s political drama that the central bank would stand by if Washington fails to deliver the bailout that many agree to. And those propped markets, which, given the choice between a broad package of economic aid and targeted liquidity support from the Fed, would always choose the latter because of its asset price benefits.
At the same time, the increasing threat to the economy from the rapidly spreading coronavirus remains a headwind in the market. The outlook for a pandemic continued to worsen over the weekend, and the accelerated surge in US cases has helped the global total exceed 50 million. In the US, cases were nearing 10 million. While Biden’s election victory is likely to result in more aggressive moves to contain the virus among Washington policymakers, changes will take some time to have a noticeable impact on broadcast levels after he was sworn in as president in January.
“Covid has replaced election uncertainty as the main driver of investor concerns about the stock market,” Evercore ISI’s Dennis DeBusschere wrote in a note. “More positive news about vaccine development would help offset some of the increase in hospital stays and deaths.”
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