Washington and Wall Street are seemingly existing in two different realities.
After a chaotic day at the Capitol on Wednesday, the three major indexes rallied to new records, undeterred by continued political unease.
Nancy Tengler, chief investment officer at Laffer Tengler Investments, credits the cool nature of the markets in looking past the unrest.
“The stock market is not a proxy on society; it’s a proxy for future economic growth, and so while we can certainly feel the sadness and sorrow of this event, the market doesn’t have feelings. It’s looking forward to future earnings,” Tengler told CNBC’s “Trading Nation” on Thursday.
Additional stimulus should also keep money flowing into the market, she said.
“If you look at the lagged effects of stimulus, we are still benefiting from the March/April stimulus that we received last year, and so we expect that the $900 billion that was just passed is not even in the market yet,” said Tengler.
Even so, Tengler does warn that markets could see a correction, although she sees that as an opportunity to add to positions because “liquidity always finds its way into risk assets.”
Matt Maley, chief market strategist at Miller Tabak, agrees with Tengler that the market could see a correction. Unlike Tengler, his concern lies in the market’s belief that excess liquidity will be unlimited.
“What happened this week is a sign of that complacency in the marketplace,” he said in the same interview. “I mean, we’ve had a 16% rally in just two months, and an almost 70% rally since March. So that kind of news should have been something that knocked it down a little bit more. And again, this feeling that ‘don’t worry the Fed and the stimulus is going to be unending, it’s always going to push the market higher’ has got people complacent in completely ignoring any potential bad news.”
Comments from the Federal Reserve including Raphael Bostic of Atlanta suggest that monetary stimulus could be tapered sooner than later, said Maley. Any tightening could trigger a pullback or correction.
“People can raise a little bit of cash here to take advantage of corrections that are always normal and always healthy, especially when you get to an expensive market like this one,” Maley said. “You might want to raise a little cash as the market rallies early this year and be able to take advantage of a pullback, which I think will begin before the first half is over.”
The S&P 500 has climbed more than 1% to begin the year. The index hit a high of 3811.55 on Thursday.