This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.

Stocks March Upward During A Tumultuous Week in US History

Invesco US

Invesco US
Visit: Invesco US


Global Market Strategist

Weekly Market Compass: It was a week of surprise, horror and disappointment. Why didn’t stocks react?

The past week has been a momentous one, to say the least. It was filled with surprise, horror and disappointment — certainly in the US, but also for those watching around the world. I received a number of questions about how the stock market could be up in a week like this one. Let me try to explain:

We have to recognize that the stock market has had an upward bias that was created long before the November election, driven by strong monetary policy accommodation from the Federal Reserve. Then we learned in the fourth quarter that multiple vaccines had been developed that were effective in protecting against COVID-19. That is a gamechanger and creates a lot more confidence in an economic recovery in 2021, which in turn is obviously a powerful catalyst for stocks. And so, I believe stocks looked at events and data this week through the lens of positive bias.


First came the Georgia Senate elections on Jan. 5. The Democratic sweep came as a surprise to so many; it is certainly not what we would have predicted in November. Our early election analysis focused on what investors might expect from a divided government. Now, we turn our sights to what’s possible under a unified government led by the Democrats.

Clients have asked how the stock market can rally with a unified Democratic government, especially since the stock market typically rewards divided governments. While divided government has typically appealed to markets, I would argue that it’s perhaps better to have a unified government in a time of crisis – which I believe markets are recognizing. The US is facing a massive health and economic crisis, and so the ability to get nominees confirmed and to legislate is important. But keep in mind this is a razor-thin margin, which is likely to ensure most legislation is in the “center lane” for America.

My colleague Andy Blocker, Head of US Government Affairs for Invesco, provided a list of two categories: things that are “now possible” and “not possible” given the Senate results.

Now possible

  • Once inaugurated, President-elect Biden should be able to get his full Cabinet confirmed in a timely fashion.
  • A second round of COVID-19 relief and assistance is widely expected to be larger and contain state and local assistance.
  • A robust infrastructure package is now more possible and will likely include green initiatives.
  • Tax increases to help pay for infrastructure are now possible starting with corporate taxes, with a chance for other targeted tax increases.

Still not possible

  • The Senate filibuster will stay in place. Senator Joe Manchin has already stated that he will not vote to get rid of the filibuster for legislative items.
  • Keeping the filibuster prevents “packing” the Supreme Court (increasing the number of seats on the court and filling them with Biden nominees) and prevents statehood for the District of Columbia or Puerto Rico.
  • We don’t expect a Green New Deal, even though there may be attempts to intersperse green initiatives in various bills as they are considered.
  • We also don’t expect Medicare for All. President-elect Biden does not support it, and even if he did, there are not the votes among Democrats in the Senate to pass it, in our view.


As the US was learning the election results, then came the heinous and violent takeover of the US Capitol. Despite such a destabilizing attack on American democracy, markets barely flinched. But why not?

I believe stocks were looking ahead to better days, expecting a robust economic recovery once there is broad distribution of vaccines – and anticipating more stimulus given the outcome of the Georgia Senate races. As my colleague Brian Levitt aptly put it, “I take solace in the system holding, democracy prevailing, and the markets focusing on persistent tailwinds.” I couldn’t agree more.


And then finally, on Friday, we got the US jobs reports for December, which showed a decline in monthly payrolls for the first time since the recovery started. It reminded us of the terrible impact of rising COVID-19 infections, which can easily derail a nascent recovery. I was not surprised by this report. The US has allowed the economy to be damaged by withholding stimulus for so long. I believe the K-shaped recovery is going to get worse before it gets better – but it should get better later in 2021.

If markets were surprised by the jobs report, they didn’t show it. In fact, stocks reacted positively, as it adds to the potential for more stimulus.

Later in the day on Friday, we learned that Senator Manchin opposes an additional $2,000 stimulus check, and that briefly pushed stocks lower before an aide walked the comments back and stocks breathed a sigh of relief.  As I have said before, the current environment necessitates ongoing fiscal stimulus until vaccines are broadly distributed and the economy can fully re-open. I expect that to happen.

Key takeaway

In terms of market implications from this week, the key takeaway, in my view, is that the reflation trade should continue because markets expect a strong recovery this year after some early headwinds. I believe the recovery is now likely to have additional support behind it given the election outcome this week, which I would expect to benefit cyclical and smaller-cap stocks. Cyclical momentum should also help drive the 10-year US Treasury yield modestly higher, although we continue to expect modest inflation.

As we have seen time and time again, even horror and disappointment can be overlooked by markets when monetary conditions are supportive. And that is certainly true of 2021 so far.

Originally Posted on January 11, 2021

Stocks March Upward During A Tumultuous Week in US History by Invesco US

Important Information

A K-shaped recovery is one in which wealthier households are doing better and lower income/lower wealth households are doing worse.

A reflation trade is when investors put their money into asset classes that may benefit from an uptick in growth caused by stimulus following an economic contraction.

Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.

The opinions referenced above are those of the author as of Jan. 11, 2021. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.

Disclosure: Invesco

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial advisor/financial consultant before making any investment decisions. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax professional for information concerning their individual situation. The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.




All data provided by Invesco unless otherwise noted.

Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s Retail Products and Collective Trust Funds. Institutional Separate Accounts and Separately Managed Accounts are offered by affiliated investment advisers, which provide investment advisory services and do not sell securities. These firms, like Invesco Distributors, Inc., are indirect, wholly owned subsidiaries of Invesco Ltd.

©2021 Invesco Ltd. All rights reserved.

Before investing, carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Invesco and is being posted with permission from Invesco. The views expressed in this material are solely those of the author and/or Invesco and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

trading top