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  • Stocks slipped from highs in the final hours of trade amid chaos in the US capital as a pro-Trump protest turned violent.
  • Protestors stormed Congress, but stocks still ended the day broadly higher after the surprise Democrat Senate sweep.
  • Stock markets have been discounting more fiscal stimulus and regulatory changes.

US equities markets slipped back from highs in the final two hours of trade on Wednesday amid a combination of concerns regarding an escalation of violence at a pro-Trump protest outside of Congress in Washington DC and amid rising concerns over US/China relations.

However, net-net, it was still a broadly risk-on day as investors cheered in wake of a surprise Democrat sweep in the two Senate elections that took place in Georgia on Tuesday. In winning the two Senate seats, the Democrats now have 50 seats in the Senate meaning that in case of a tie with the Republicans (who also have 50 seats), Democrat Vice President-elect Kamala Harris will have the tie-breaking vote. With a majority secured in the Senate, Democrats now have control over what legislation will be able to pass through Congress and investors are betting that means large sums in additional fiscal stimulus will be on the way.

As such, the S&P 500 ended the day with gains of around 0.6%. A rotation from growth stocks (i.e. big Tech) into value stocks (i.e. small-cap stocks) was evident, with the Nasdaq 100 slipping 1.4% on the day while the Russell 2000 rallied 4.1%. Investors expect that tougher regulations on big Tech will be on the way, hence the downside in the Nasdaq.

Tesla performed well amid hopes it will benefit from tougher Democrat environmental regulations, although energy stocks (+3.0%) also did well, given that any Democrat restrictions on US crude oil production are actually likely to be a positive for oil prices.

Financials (+4.4%) did well, amid the rise in US bond yields on the back of expectations for greater debt issuance over the coming months. Industrials (+2.36%), Utilities (+2.46%) and Basic Materials (+4.09%) all also did well.

Stocks slip from highs in final hours

US equities markets slipped back from highs in the final two hours of trade on Wednesday amid a combination of concerns regarding an escalation of violence at a pro-Trump protest outside of Congress in Washington DC and amid rising concerns over US/China relations.

Starting with the former; as Congress convened on Wednesday to debate and certify the November 2020 US presidential election, a nearby pro-Trump rally, which featured a speech from US President Donald Trump himself, turned violent. The protestors-turned-rioters have now stormed Congress, halting the election certification process for the time being. Congress has been evacuated and reports suggest one woman has been shot and is in a critical condition.

The storming of Congress by Trump supports has been roundly condemned by politicians on both sides of the US political aisle and by leaders across the world. Though markets expect that law enforcement will soon have the situation under control and the normal transition towards the arrival of the incoming Biden administration will continue, fears of further violence in the weeks ahead contributed to a dampening of the market’s appetite for risk into the US close.

Moving onto the latest news on the US/China front; a WSJ report suggested that US officials are reportedly considering prohibiting Americans from investing in Alibaba and Tencent Holdings. Such a move comes after US President Donald Trump signed an executive order banning transactions with 8 Chinese software applications including Ant Group’s Alipay, while CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate and WeChat Pay. Meanwhile, the NYSE is moving ahead with its decision to delist Chinese telecommunications companies if they are included in a ban on investment in Chinese firms with links to the Chinese military.