US stock markets hit new records as Joe Biden became the 46th US president, propelled by optimism that his administration’s $1.9tn stimulus spending plan could help insulate the global economy from the damage wrought by coronavirus.
The benchmark S&P 500 index ended the day up 1.4 per cent in New York to a closing record, adding to the gains it enjoyed on Tuesday when Janet Yellen, Treasury secretary nominee, urged Congress to “act big” on stimulus.
About two-thirds of the companies listed on the index were positive in the session.
The technology-focused Nasdaq Composite rose 2 per cent to a record, boosted by a 16.9 per cent rise for Netflix after the video streaming service passed 200m subscribers in its latest earnings update and hinted at share buybacks.
The Netflix results provided support to those who have argued companies can grow into what look on some measures to be extended valuations.
“Investors took that as an opportunity to look back at growth . . . after everyone was value-focused over the last couple of weeks,” said George Catrambone, head of Americas trading at DWS Group, noting that technology stocks were strongly outperforming the S&P 500.
“Investors see a Goldilocks scenario for stock markets,” said Silvia Dall’Angelo, global economist at UK fund manager Federated Hermes. While “massive” US stimulus spending was expected to feed faster price rises this year, the Federal Reserve was unlikely to respond with a US interest rate increase that would knock companies’ earnings prospects, she said.
“Markets are relying on monetary policy to remain quite accommodative,” she said, noting comments last week by Fed chairman Jay Powell that the US central bank was unlikely to respond to any economic recovery “too early”.
Growing anticipation of higher inflation has driven a reordering in US financial markets since the Democrats won control of the Senate earlier this month. A measure of inflation expectations derived from the price of inflation-protected debt instruments is running at more than 2 per cent.
Gold, commonly used as a hedge against inflation eroding the value of cash and government debt, gained 1.6 per cent to $1,869 an ounce.
US 10-year government bonds, which have sold off in recent weeks as inflation expectations have risen, attracted some buyers after Mr Biden’s inauguration, with the yield falling 0.01 percentage points to 1.08 per cent.
In Europe, the benchmark Stoxx 600 equity index closed 0.7 per cent higher, while Germany’s Xetra Dax rose 0.8 per cent and the UK’s FTSE 100 added 0.4 per cent.
“The US stimulus will increase global demand, which will benefit European companies,” said Francesco Sandrini, a multi-asset fund manager at Amundi.
“But we think European equities are set for a pause,” he added, as investors assess the “further economic hits from lockdowns” against the pace of vaccination programmes that has so far been sluggish in some countries.
In currencies, sterling rose to its highest level in eight months against the euro, gaining 0.4 per cent to purchase just under €1.13, after stronger than expected inflation data for December signalled the UK’s economic slowdown may be less severe than feared.
In Asia, Hong Kong’s Hang Seng index closed 1.1 per cent higher, while the mainland China benchmark CSI 300 and South Korea’s Kospi both gained 0.7 per cent.
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