US stocks hold gains amid violence at the Capitol

Stocks rose Wednesday, holding onto gains even as protests against the election certification of President-elect Joe Biden turned violent and the Capitol building was placed on lockdown. But the chaos in Washington did leave major bench marks off their highest levels of the day. The S&P 500 was up by about 0.8% in afternoon trading, after having climbed as much as 1.5%. The early gains had come as investors bet that victories by Democrats in two runoff elections for the Senate in Georgia would lead to a surge in federal spending that would speed up the economic recovery.

Those bets were largely intact by Wednesday afternoon. The Russell 2000 index of small capitalisation stocks — which are closely tied to the domestic economy — gained more than 3%, putting it on pace for its biggest daily gain since last May.

“The Democrats have made it perfectly clear that they want to spend more money. They wanted to do a $2 trillion or $3 trillion stimulus and we only did $900 billion, so it’s pretty likely we’re going to get another $1 trillion to $2 trillion of spending,” said Mike Wilson, chief US equity strategist at Morgan Stanley. “And that could be pretty quick.”

Wednesday’s rally came after a Democrat, the Rev. Raphael Warnock, defeated the Republican incumbent Kelly Loeffler in one of Georgia’s two runoff elections for Senate. Jon Ossoff, a Democrat, defeated Republican incumbent David Purdue.

The two victories mean Democrats effectively retake control of the upper chamber, drastically expanding the legislative possibilities available to the incoming Biden administration as it contends with the economic wreckage of the ongoing COVID-19 pandemic.

Most economists say such spending would be a boon to the American economy, which remains in disarray after an almost yearlong pandemic. In November, there were roughly 10 million fewer employed workers in the country than before the virus struck in February.

“A sweep for the Democrats will likely lead to additional stimulus measures that would likely boost short-term economic growth,” wrote Steve Chiavarone, portfolio manager and equity strategist with Federated Hermes, a Pittsburgh-based asset management firm.

Among larger stocks, companies in industries likely to benefit from a growth boost led the gains on Wednesday. Commercial banks, producers of construction materials, automakers and machinery stocks were higher.

Shares of companies that could stand to gain from Biden’s push for renewable energy soared. Sunrun and Sunnova, two of the country’s largest home solar power companies, jumped more than 10%.

Firms that would benefit from a wave of infrastructure spending also leapt.

A Democratic agenda underpinned by government spending, both as a response to the pandemic and also to make long-sought upgrades to the nation’s infrastructure, would require more borrowing and increase the amount of Treasury notes and bonds in the market — which would put pressure on bond prices and increase yields, which move in the opposite direction.

The yield on the bench mark 10-year note climbed to 1.04%, a level it has not seen since March.

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