Shouldn't Wall Street be more concerned about the Capitol insurrection?
Wall Street shrugged off an historic assault on American democracy. Maybe it shouldn't have.
When COVID-19 started exploding back in March, the Dow Jones Industrial Average often tumbled by a thousand or even two thousand points a day. So how did the stock market react this week to another extreme crisis — the most destructive breach of the U.S. Capitol since the War of 1812 and what could be seen as a possible coup attempt? It reacted pretty well. The Dow dipped for a bit during the worst of the Jan. 6 attack, but finished higher on the day. And it rose the next day, too. Stocks also finished positive today, despite a disappointing December jobs report.
To some populist critics on the left and right, this sanguine financial behavior will be interpreted as more evidence of a worrisome disconnect between Wall Street and Main Street. Obviously, the big banks and hedge funds could care less about a historic assault on American democracy, as well as the continuing economic pain being suffered by a pandemic-ravaged nation. "Late capitalism" at its very worst.
But just the opposite, I think: Wall Street's confidence reflects a big bet on a brighter American future, certainly in the near to medium term. Disagree with that assessment if you want, but that's how investors are seeing things. Here's what JPMorgan told clients in its morning note, the day after the chaos on Capitol Hill: "Whether you think this is a 'failed insurrection,' 'failed coup,' 'terrorism' or 'just a few bad apples' there is no obvious policy or law enforcement response that impacts markets."
All of which is correct. Congress still certified the electoral vote victory by Joe Biden and Kamala Harris. Martial law wasn't declared in the wake of the attack. Markets opened as usual the next morning. Donald Trump will still leave office in less than two weeks. The system is working, even with an unhinged, authoritarian president sitting in the Oval Office.
And now it's time to focus on an American economy that seems headed toward its strongest performance in perhaps four decades. Democratic victories in the two Georgia elections for the U.S. Senate have made Wall Street even more bullish about 2021. With Democrats taking unified control in Washington, investors are expecting more fiscal stimulus beyond the $900 billion plan passed in late December.
And while today's job report was disappointing — the U.S. shed 140,000 jobs last month rather than an expected gain of 50,000 — the continuing vaccine roll-out should eventually help unleash huge demand in hard-hit sectors such as travel and restaurants. Of course, that assumes the pace of vaccinations picks up considerably. Goldman Sachs, for instance, expects about half the U.S. population will be vaccinated by April, climbing to about three-fourths by year-end. So some potential there for disappointment that would delay the return to strong economic growth.
But there are longer-term risks, ones that stem directly from the failed revolt. High-trust societies — trust in public institutions, businesses, and fellow citizens — tend to be fast-growing societies. As Sen. Ben Sasse (R-Neb.) said on the Senate floor Wednesday night, "You can't do big things together as Americans if you think other Americans are the enemy." It's doubtful American trust in much of anything has improved over the past week.
Moreover, a sizable chunk of America's global influence comes from the powerful example of its success as a smooth-functioning — albeit imperfect — multiracial democracy, as well as from its direct military and economic power. As it is, America's pandemic response has worsened a decline in our global image caused by the 2016 election of President Trump. Events on Wednesday surely eroded that image and influence further.
For instance: Soon after the attack on Congress, Zimbabwe's president tweeted that the United States had no right to extend economic sanctions: "Yesterday's events showed that the U.S. has no moral right to punish another nation under the guise of upholding democracy. These sanctions must end." And the front-page headline in Keyna's biggest independent newspaper: "Who's the banana republic now?" America has suffered a long-lasting national humiliation on the global stage just as competition with China for international influence intensifies.
Or think about a bit of billionaire news you may have missed this week. Elon Musk surpassed Jeff Bezos as the world's richest man. Musk, a South African-born immigrant who has been a U.S. citizen since 2002, has long praised America as the best place to live if you want to make big dreams come true. After four years of the Trump administration's persistence in undermining the U.S. immigration system and now a frightening attack on the center of U.S. democracy by terrorists that included white supremacists, how inviting does America look right now to foreigners with big dreams?
I'm not sure how you factor any of this into an economic forecasting model. And maybe an economically resurgent and politically resilient America will come to overshadow memories of the violent penetration, desecration, and sack of the U.S. Capitol. Long-term American prosperity may depend on it.