By Rebecca Lowe
Last week in the US, we watched as Trump supporters stormed the Capitol in Washington, disrupting a joint session of Congress convened to certify President-Elect Joe Biden’s victory of Donald Trump. It was also a week that saw calls for Trump to be impeached, and confirmation that the US congress will be wholly under the control of the Democrats after winning both special elections in Georgia. So how did markets respond to these events?
Despite the turbulence, Wall Street surged on Wednesday even though the market closed while Trump supporters were still in the Capitol Building, and again on Thursday with the Dow Jones closing at a record high of 30,829.40. Asian stock markets also rallied, as did the S&P/ASX 200 Index.
The stock market has a long history of ignoring social upheaval, as evidenced during the 1960’s in the US. The assassination of President Kennedy occurred in 1963, civil rights marches in the South happened during 1965, Vietnam War protests occurred in 1967 and outrage was expressed after Martin Luther King Jr. was killed in 1968. During this decade stocks were volatile, often falling in the wake of these specific news events. But in each of these four years, the S&P 500 finished with a gain, with stocks up 14% on average.
Despite the actions of Trump supporters in Washington, investors appear to be more focussed on the Democrat’s victory in the Georgia Senate run-off, which will give the Democrats control of the Senate. Control of both houses will allow the incoming president to enact his policies, but also increase the focus on them and their outcome.
Closer to home, the S&P/ASX 200 Index closed the first week of trading at 6,757.90, the best weekly performance since mid-November 2020. While the Australian stock market still has some way to go before reaching the highs of February 2020, higher commodity prices are driving the share market forward.
Last week, ANZ reported that the number of roles advertised on online job portals rose 9.2% over December to pre-pandemic levels. And whilst the resurgence in vacancies coincided with retail’s Christmas casual hiring period, these latest job vacancy figures could point to unemployment falling faster than Treasury forecasts, which expect joblessness to peak at 7.25% by March 2021.
Interest rates are likely to continue to remain low for some time as the Reserve Bank remains committed to not increasing the cash rate until inflation is sustainably within the 2% – 3% target range. According to the Australian Bureau of Statistics, the Consumer Price Index (CPI), a measure of household inflation, rose by just 0.7% over the 12 months to September 2020.
While 2020 is over, coronavirus will continue to influence economic and financial market outcomes, even as vaccines begin to be distributed globally. In Australia, the focus will be very much on unemployment numbers as JobKeeper and JobSeeker support payments are gradually wound back in the coming months.
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