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  • The S&P 500, Nasdaq Composite and Dow Jones Industrial Average all closed higher on Wednesday. 
  • Markets were quiet and conviction was lacking as the end of the year approaches. 
  • US fiscal stimulus politics remains in focus. 

The S&P 500 closed 0.18% higher, the Dow Jones Industrial Average 0.26% higher and the Nasdaq Composite Index 0.17% higher. Trading conditions were thin on Wednesday, with a lack of any real conviction in the market.

The S&P 500 index managed to climb back above the 3740 mark during early trade but was unable to get as high as Monday’s record levels above 3750. Meanwhile, the Nasdaq briefly popped back to the upside of the 12900 level but was unable to match Monday’s highs above 12960 and the Dow briefly climbed above 30500 before slipping back towards 30400.

Month, quarter and year end portfolio rebalancing flows continue to distort the price action and seemed to have supported the equity complex via the channel of a weaker US dollar. Indeed, traders seemed eager on Wednesday to front-run expectations for a weaker dollar in 2021 and pushed the Dollar Index to fresh annual lows in the 89.50s. Meanwhile, market focus also remains on the issue of US fiscal stimulus.

US fiscal stimulus update…

The bill that would increase the size of the direct payments being sent out to each American to $2,000 looked “all but doomed” reported CNBC, as Republican Senate Majority Leader Mitch McConnell refused to separate the direct payments from the two other unrelated demands being made by US President Donald Trump.

The President is demanding that, as well as the size of the cheques be increased to $2000, Section 230 of the Communications Decency Act (provides legal liability protections for internet platforms) be repealed and that Congress sets up a commission on voter fraud. These are toxic issues for the Democrats, who are very unlikely to vote in favour.

Tying the Section 230 repeal and voter fraud commission provisions to the stimulus cheque increase seems to be McConnell’s way of balancing his desire not to increase the size of the already agreed $900B Covid-19 aid package and appealing to the President by making it look as though he is fighting for his priorities. Whether this balancing act will work in the eyes of the American public ahead of the Senate run-off race in Georgia on 5 January is another thing.

The Democrats need to take both seats to take control of the Senate and thus Congress. If they can pull this off, as polling indicates is likely right now, then the Biden Administration is likely to be able to get significantly more stimulus legislated throughout the course of 2021. This will be the main focus of the market in the new year, though analysts warn that just as the result of the Presidential election was not immediately clear on the night of 3 November 2020, the result of the Senate election on 5 January is also unlikely to be clear.