Some Asset Market Reactions

Stock, currency and bond markets respond (up, up, yield up) on news of likely Democratic control of the Senate

Figure 1: DJIA, as of noon CST, 1/6/2021. Source:

Stock market jumps – suggesting expectations of higher present value of dividends (despite perhaps higher corporate taxes, see this post). Interestingly, the dollar jumps as well, with some zig-zagging. This might reflect revised expectations of faster economic growth.

Figure 2: DXY trade weighted value of USD, as of noon CST, 1/6/2021. Source:

Interestingly, the rise of the 10 year Treasury yield – by around 15 bps – suggests a yield curve steepening that would be associated with an upward revision in growth (it’s also consistent with a greater budget deficit).

Figure 3: Treasury 10 year yield, %, as of noon CST, 1/6/2021. Source:

Note: Time scale is one year on Figure 3.


7 thoughts on “Some Asset Market Reactions

  1. macroduck

    The early market reaction is consistent with improved economic expectations. That consistency, across markets, does suggest a change in the median expectation. Still, some caution is warranted in reading expectational changes from market reactions of, so far, quite short duration.

    This caution has always been warranted, even more so now when the first impulse is driven almost entirely by machine trades. Investment committees haven’t had time for lunch, much less decision making.

    1. baffling

      it probably has a lot to do with more rational and uniform policy going forward, rather than any specific policy per se. it is much easier to navigate around a policy you disagree with, than to constantly be whiplashed by policies that are at odds with one another. in think the market feels they have a better ability to predict policy over the next year than they did last night, whether or not they think that policy helps or hinders their financial goals.

  2. pgl

    Republicans told us that voting for their guys was necessary to save America. Looks like Wall Street has rejected such stupid GOP rhetoric.

  3. Dr. Dysmalist

    The author of the previous post indicated that macroeconomic fundamentals are very important influences on equity markets. Also, anyone with an IQ above the freezing point of water (in Fahrenheit degrees) knows that Biden is highly likely to have consistent and coherent economic policies, though more consistent and coherent than Trump’s policies is an extremely low standard to exceed. Markets will of course respond positively to coherence and consistency, at this point any coherence and consistency. I’m sure the future charts of uncertainty and volatility that Menzie has planned (?!) will have lower peaks and higher valleys than the graphs he has created for us in the past (barring any future exogenous shocks to the economy, like pandemics).

  4. Barkley Rosser

    Why the market barely even nudged downward after the Trumpscheiss stormed the Capitol and halted the counting of the electoral college votes. Pretty robust.

    1. Moses Herzog

      @ Barkley Rosser
      This is a rare thing we agree on. It’s not an amazing thing the equities market was as strong as it was “on a day like today” (“a day like no other”??), but I guess the word I’m looking for is “striking”?? This is one of those deals where I wonder for a few minutes if the Federal Reserve might have “stepped in”. But actually if I was a betting man, I would say “No” they did not. Market participants are “discounting the future value of a dollar received tomorrow” I guess.

      The other side of the equation is, that one person died at the U.S. Capitol today that didn’t need to die. Completely useless. But if a “leader” intentionally inflames illiterate mobs we know what happens.


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