U.S. stock indexes cling to slight gains ahead of historic impeachment vote in Washington

U.S. stocks mostly booked modest gains Wednesday, amid a historic House vote on impeaching President Donald Trump, one week before he is set to leave office.

How did major indexes trade?
  • The Dow Jones Industrial Average

    shed 8.22 points, less than 0.1%, to close at 31,060.47, but only 0.1% off its record close last Friday.

  • The S&P 500

    added 8.65 points, 0.2%, ending at 3,809.84.

  • The Nasdaq Composite

    gained 56.52 points, 0.4%, finishing at 13,128.95.

Stocks struggled for direction Tuesday, flipping between modest gains and losses before finishing to the upside, allowing the Dow, S&P 500 and Nasdaq Composite to avoid their first back-to-back losses of 2021.

What drove the market?

Stocks mostly closed marginally higher Wednesday as investors monitored efforts in Washington to impeach President Trump for the second time.

Peter Andersen, founder of Andersen Capital, thinks political considerations are weighing on the market much more than many investors may realize.

“The market right now just has no direction,” Andersen told MarketWatch. “People are focused so much on the short-term. I’m holding tight between now and the inauguration, making no investment decisions, because it’s near-chaos in the market. Nobody has any idea on how things are going to resolve, so we get fluctuations that don’t make any sense.”

However, equities remain supported by the prospect of more fiscal aid for the economy from the incoming administration of President-elect Joe Biden and assurances by Federal Reserve officials of ongoing support for the central bank’s bond buying program.

At the closing bell, the House of Representative looked likely to vote in favor of impeaching Trump for a second time and to charge him with inciting an insurrection following the riotous invasion of the Capitol last week, with several Republicans breaking ranks and supporting impeachment.

Even so, Senate Majority Leader Mitch McConnell, R-Kentucky, reiterated Wednesday that any vote in the Senate on removing Trump from office would happen only after Biden becomes president. 

See: Donald Trump impeachment 2.0? Why stock-market investors aren’t freaked out

Despite U.S. political risks looking reminiscent of emerging markets, stocks largely have held up near record territory, as investors instead focus on the potential for the initial rollout of COVID-19 vaccines to gather steam and for President-elect Joe Biden plan to secure fiscal additional stimulus for the economy.

“Over the past few months, with the announcement and initial deployment of the vaccines, that’s translated to a view that a broader-based economic recovery can happen,” Matthew Stucky, portfolio manager at Northwestern Mutual Wealth Management Company, told MarketWatch.

Related: ‘The biggest data puzzle of our lifetime’ — Vaccine distribution effort gets help from Big Tech

Stucky remains concerned though about the potential for inflation to get “out of hand” and whether so-called “breakeven” rates on Treasury inflation-protected securities, or the difference in annual yields between consumer-price-inflation-protected bonds and the regular bonds, will climb higher after touching 2% last week, or their highest prior level since Nov. 2018.

“If it starts pushing above 3%,” he said of breakeven rates, “you have to wonder if the Fed can continue to do what it’s been doing.”

However, Federal Reserve Governor Lael Brainard said Wednesday that the central bank likely will continue its large-scale bond-buying program for “quite some time,” since the U.S. economy remains “far away” from the Fed’s goals of a healthy labor market and stable inflation.

Data shows U.S. inflation remained tame in December, allowing the benchmark 10 year U.S. Treasury note yield BX:TMUBMUSD10Y to extend its pullback Wednesday from 8-month highs, after climbing over 1.0% in the past two weeks.

The Fed also reported only a modest uptick in economic activity in most of its districts, in its latest Beige Book survey of business and economic conditions issued every six weeks, amid optimism around the COVID-19 vaccine rollout.

In other economic data, the U.S. budget deficit climbed to $144 billion in December.

Equities have remained supported by expectations that the incoming Biden administration will push through another round of aid spending to sustain the economic recovery from the coronavirus pandemic.

The U.S. has the highest reported case tally in the world at 22.8 million and the highest death toll at 380,821, or more than a fifth of the global total. The U.S. added at least 229,603 new cases on Tuesday according to a New York Times tracker, and counted at least 4,402 deaths, the most in a single day since the start of the outbreak.

Underscoring the difficulty around the globe in containing the pandemic, China placed over 22 million people under lockdown this week amid the worst resurgence of the pandemic since last summer, or double the number of impacted by its Wuhan shutdown a year ago when the virus was first reported, the New York Times reported.

Which companies were in focus?
How did other assets perform?
  • The yield on the 10-year U.S. Treasury note

    was down about 4.5 basis points to 1.089% after a strong bond auction.

  • The ICE U.S. Dollar Index
     a gauge of the currency against a basket of six major rivals, was up 0.3%.

  • Oil futures settled lower after an up-and-down morning, with the U.S. benchmark

      0.6% lower to close at $52.91 per barrel, even as inventories fell. Gold futures

    settled 0.6% higher at $1,854.90 an ounce.

  • The pan-European Stoxx 600 index

     closed 0.1% higher, while London’s FTSE 100

     ended 0.1% lower.

  • In Asia, the Shanghai Composite

      closed 0.3% lower, while Hong Kong’s Hang Seng Index

     lost 0.2% and Japan’s Nikkei 225 index NIK jumped 1%

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