NEW YORK, United States (AP) —Wall Street rallied yesterday on expectations of more stimulus for the economy, although the enthusiasm was dampened by chaotic scenes in Washington as pro-Trump protestors stormed the US Capitol.

The S&P 500 rose 0.6 per cent, giving up much of an earlier rally, while the Dow Jones Industrial Average closed at a record high. Small company stocks did especially well as investors ploughed money into businesses that would be winners if Democrats can pump even more financial stimulus into the economy amid rising expectations that the GOP may lose control of Washington. The yield on the 10-year Treasury topped one per cent for the first time since March.

Earlier, the rally lost some momentum after the US Capitol building went into lockdown as supporters of President Donald Trump broke through barricades and entered the building following clashes with police. Both Houses of Congress abruptly went into recess, interrupting debate over the Electoral College vote that gave Joe Biden the presidency. Earlier, Trump riled up the crowd with his baseless claims of election fraud.

Most stocks were still higher after Democrats won one of the two run-off elections in Georgia that will determine which party controls the Senate. The second run-off was still too early to call. The S&P 500 was up 0.8 per cent in afternoon trading, giving up about half of its gain from earlier. The Dow Jones Industrial Average was up 446 points, or 1.5 per cent, at 30,839, as of 3:19 pm Eastern time.

The moves on Wall Street masked even bigger shifts happening underneath the surface as investors jockey to find the winners and losers of a Senate, White House and House of Representatives that may all soon be under Democratic control. The yield on the 10-year Treasury topped one per cent for the first time since March, for example.

Big Tech stocks are also in the spotlight as investors shift away from the winners of the stay-at-home economy of the pandemic and rotate into companies whose profits would benefit most from a healthier economy. The Nasdaq composite, which is full of tech stocks, struggled for much of the morning and was flat after shedding modest early gains.

“This is just a market taking into account the likely outcomes from what happened in the election,” said Andrew Mies, chief investment officer at investment advisory firm 6 Meridien. “You have the recognition that the Democratic agenda is probably much more mainstream than people feared.”

A report yesterday underscored how fragile the economy is because of the worsening pandemic. Payroll processor ADP said private employers cut 123,000 more jobs last month than they added. It was much worse than economists’ expectations for job growth, and it was the weakest such report since April. The Labour Department’s more comprehensive report on jobs growth is due on Friday.

The Russell 2000 index of small-cap stocks nevertheless surged 3.3 per cent, much more than the rest of the market. Another round of stimulus for the economy could benefit smaller companies in particular because they tend to have smaller financial cushions to survive long-term downturns.

Stocks of companies that would profit from increased spending on infrastructure were also helping to lead the market. United Rentals, whose catalog includes forklifts and light towers for construction sites, jumped nine per cent for one of the bigger gains in the S&P 500. Vulcan Materials, which sells asphalt and other construction materials, rose 8.2 per cent.

“More fiscal support forthcoming likely means a stronger economic recovery and markets are pricing that in,” said Brian Levitt, global market strategist at Invesco. “Today is the recovery trade.”

Big spending plans for the economy could trigger not only stronger growth for the economy in the future but also heavier borrowing by the US Government and maybe even inflation. Those factors are helping to push up Treasury yields, and the yield on the 10-year Treasury rose to 1.04 per cent from 0.94 per cent late Tuesday.

The increase in yields, along with rising hopes for a strengthening economy, helped push banks higher. Financial stocks rose 4.4 per cent for the biggest gain among the 11 sectors that make up the S&P 500. Zions Bancorporation jumped 11 per cent, and KeyCorp gained 9.6 per cent.

On the other end of the market was Big Tech. A Democratic controlled DC could mean tougher regulations are on the way for the group, which already has been facing increased scrutiny. Apple, the most valuable stock on Wall Street, said in a regulatory filing Tuesday that its board regularly reviews the company’s antitrust risks.

Several Big Tech stocks were lagging, including a 2.5 per cent drop for Apple and a two per cent fall for Facebook. These are among the biggest companies on Wall Street, which gives their stock movements outsized weight on the S&P 500 and other indexes.

The rise in Treasury yields also undercuts one of the underpinnings for some tech stocks and other high fliers that breezed through the pandemic.

When bonds are paying more in interest, it can pull some investors away from stocks. And that can hit companies in particular that trade at relatively expensive prices compared with their earnings. That could accelerate the rotation that has already begun by investors out of tech stocks and into beaten-down, cheaper areas of the stock market.

The rise in yields also adds pressure on the Federal Reserve, which has kept short-term interest rates at record lows in hopes of goosing the economy.

“The ball will be in the Fed’s court next and the question becomes how are they going to react to this evolving political backdrop,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.

Democratic control of Washington could also lead to higher tax rates for businesses, which would crimp profits and add downward pressure on stocks broadly.

Analysts, though, also caution that no big changes may ultimately come from Washington given how slim the Democratic majority may be. If the party ultimately wins the second run-off for a Georgia Senate seat, they would have a 50-50 split in the Senate with Democratic Vice-President-elect Kamala Harris providing a tie-breaking vote.

“Investors that have concerns today should probably check some of those concerns,” Levitt said. “The first year of this administration is going to be about providing as much support as possible to an economic recovery.”

European markets ended broadly higher, and Asian markets ended mixed.