Normally when a financial market rises amid a coup or extreme political instability, it is because the leftists are out and the animal spirits of business have been released. But last week in the US there was a different kind of result. Stock markets rallied, even as a group of pro-Donald Trump insurgents rampaged through the US Capitol. The reason, in brief, is that investors were cheering that a new Democratic administration that also controls Congress is about to take over.
President-elect Joe Biden will surely raise corporate taxes and increase regulation. From the perspective of business leaders, that's never a good thing. But in last week's elections in Georgia, Democrats won two Senate seats, giving Mr Biden's party sway over both houses of Congress. That means Democrats will also be more able to push through fiscal stimulus in areas from infrastructure spending and healthcare, to education and aid to states. That in turn will complement the huge monetary tailwind still coming from the US Federal Reserve. Business, which had wrung all it could out of President Trump, is desperate for that kind of synchronised combination of fiscal and monetary stimulus.
For years, we have only had the latter. The actions of central bankers, combined with trillions of dollars of passively indexed investment that simply flows to wherever the market goes, have wiped out much of the market's usual function of price discovery. Yet the disconnect from economic reality won't last for ever.
As investment sage Jeremy Grantham wrote recently: "The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behaviour, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000."