How much damage can Donald Trump do before the 20th of January?
That’s Inauguration Day in the United States – when Joe Biden will be officially sworn in as the 46th President of the United States.
In the meantime, Trump remains President, has power, and a strong following.
Last week’s raid on Capitol Hill by Trump supporters provides a sobering reminder of what can still take place before the next Administration moves into the White House.
In the lead-up to November’s presidential election, derivative products – financial products you buy to protect your portfolio from market volatility – were bought up like never before.
That’s because financial markets, and stock markets, began to understand just how much was at stake.
Trump and Biden mean very different things for financial markets.
So now, with just days before power changes hands, how vulnerable is the stock market?
Stock take on stock market
If you can figure out the US stock market you’re doing very well!
Some have it crumbling before our eyes next week while others say this incredible bull run can go on for years.
The facts are that record low interest rates, along with the Federal Reserve and government economic stimulus, are providing the guts of the support for rising shares.
In Australia, look no further than the surging price of iron ore. Prices of commodities more generally are on a tear and its boosting share prices.
The economic data is also improving here in Australia.
Last week ANZ Job Ads showed two strong consecutive months of gains – to the point where economists say the unemployment rate could drop dramatically in coming months.
It’s all positive for the stock market.
In fact, on Friday, the S&P/ASX200 closed up 45.90 points or 0.68 per cent to 6757.90. That’s a 10-month high.
For the big picture, look no further than AMP Capital’s Shane Oliver’s insight:
“Global share markets rose strongly over the last week as prospects for even more stimulus in the US after the Georgia Senate elections offset concerns about surging coronavirus cases.”
“Reflecting the positive global lead Australian shares also rose strongly, more than reversing their soft end to 2020 with stocks leveraged to recovery in the energy, material, financials and consumer sectors leading the charge and more than offsetting weakness in health, property and IT stocks,” Dr Oliver wrote.
Financial markets ignore Washington chaos
Did you notice Dr Oliver’s comment there on the Georgia runoff election results?
They were positive for the share market.
It’s extraordinary, isn’t it? While thugs broke windows on Capitol Hill and made their way through Congress, trashing the joint, Wall Street rose to record highs.
Some commentators wrote that it was the beginning of the end of democracy in the United States. Or at the very least, America had lost its sparkle… forever.
The stock market saw it very differently.
Already, Donald Trump has indicated he will not interfere with the transition of power on January the 20th.
But on the economic front, it’s all quite sanguine – and the markets have been focusing on that, not on the mob.
A trillion dollar plus stimulus package has now been approved by Congress, and now that the Democrats have control of both houses, a further roughly $800 billion is now in the pipeline.
Yes, President-elect Joe Biden is promising to raise corporate taxes and crack down on regulation, especially in the tech sector, but the markets know this and can quantify the impact.
There’s also hope that Biden will smooth trade relations with China.
Joe Biden’s offering financial markets more certainty, stability and money. A nice trifecta.
I’m not silly enough to say it’s all blue skies from here on for global share markets.
An obvious risk is that a problem with the rollout of a coronavirus vaccine could cause major disruptions to business and the economy more broadly.
It doesn’t appear Donald Trump is going to fade into the background either.
And, let’s not forget, if economic conditions do improve significantly, heavily indebted governments and households will need to grapple with rising interest rates.
The collapse of Lehman Brothers in 2008, the global financial crisis and the coronavirus stock market crash have taught us you can’t take your eyes away from the stock market for very long.
But it is going to take more than a mob of thugs to derail the current bull market.
They may have been able to crash through the windows of Congress, but at this point, it looks like that’s all they have achieved.
As for what will end this current bull run? I wish I knew.
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