Biden’s ‘rescue America’ plan is huge. How its trillions might assist each Wall Road and Most important Road
As Americans crouch and wait for the vaccine, the number of coronavirus pandemics continues to rise.
The cost of living and livelihood prompted President-elect Joe Biden Thursday to propose another $ 1.9 trillion spending package for the first step to tackle the pandemic slaughter before he takes office next week .
But as Washington prepares to debate another major relief effort, the handshake on Wall Street has already begun as investors fear the bull market for stocks could be threatened by an economy that is overheating and borrowing costs are rising at the same time The US could potentially saddle up with unsustainable debt.
“It’s a tug of war,” said Bryce Doty, senior portfolio manager for Sit Investment Associates in Minneapolis. “The current situation is terrible, but six months later we hope that many more people will be vaccinated.”
Stock markets have gone well beyond this winter’s chapter on rising COVID-19 infection rates and deaths, as well as resumption of lockdowns in parts of the US, Europe and China. Instead, the focus was on the launch of vaccines and the expectations of the new administration in Biden to get more funding from Congress to help the economy get through the coronavirus crisis.
Biden pointed to a “deep human suffering crisis” on Thursday “in sight” and called on Congress, which is soon to be controlled by the Democrats, to approve $ 1 trillion for an additional $ 1,400 – To receive $ 440 billion in direct payments to households, as well as $ 440 billion to stagger small businesses and $ 20 billion to accelerate what he called the “dire failure” of the national vaccination program.
Check out: Enhance Economic Plan to Test Congressional COVID Fatigue Fatigue
If passed, total Congressional spending on coronavirus relief would reach $ 4.8 trillion last year, plus the Federal Reserve’s huge stimulus and bond-buying program that hit its balance sheet from $ 4.2 trillion last February has expanded to about $ 7.3 trillion, writes MarketWatch columnist Michael Brush.
“On the one hand, you have investors worried about the Fed pulling out of the stimulus while the Biden administration wants to add a ton more stimulus to the pandemic,” Doty told MarketWatch. “But the more Biden’s stimulus hits, the sooner the Fed will pull back.”
Federal Reserve chairman Jerome Powell said the conversation about the Fed’s reduction in bond purchases was premature during a virtual conversation Thursday hosted by Princeton University’s Bendheim Center for Finance.
Powell also said the Fed wants to avoid “people losing the lives they made” because of the pandemic.
Will it work?
The Biden government plans to act quickly to provide aid where it is most needed. Top priorities include drastically increasing vaccinations, helping hard-hit restaurants feed the hungry and safely reopening K-8 elementary schools.
“We have to move heaven and earth,” said Biden of his goal of getting 100 million COVID-19 vaccinated in his first 100 days in office, as well as his broader rescue plan, which some may consider a “lifeline” Don’t come for a moment too early.
Laura Veldkamp, professor of finance at Columbia University’s Business School, compared spending on strengthening the US economy with investment decisions in business.
“If a US company went on a big buying spree on low-value projects, it wouldn’t stay solvent for long,” she told MarketWatch. But if a company invests in valuable projects instead, especially at today’s low rates, it is likely to thrive, she said.
“A lot of spending on COVID, that’s super high quality,” said Veldkamp. But she also sees the potential risk that the Biden plan poses for the markets. “We’re in a position with a lot of money floating around,” she said, warning that it could trigger inflation and future Fed rate hikes, which would push rates above near zero today.
“But I don’t think we should let marginalized communities suffer,” she said, pointing to investor concerns about rate hikes that may become a possibility “sometime” in the future, given that two previous rounds of fiscal stimulus have already taken place On the way through the economy, “we still have very, very low inflation.”
Minneapolis Fed President Neel Kashkari said Friday there was little risk that the shots could go well above 2%, but even if it does, the Fed has tools to deal with it.
Investors were concerned that they were being blindly affected by changes in the Fed’s current easy money policy. This is all the more true, however, given that 10-year government bond yields TMUBMUSD10Y fell 1.090% over 1% this month. This equates to a return of around 1.5% to 3.5% for much of the past decade.
US stocks closed for the week on Friday as investors offset concerns about the potential that Biden’s bailout plan could be partially paid for by higher taxes, including for companies that could weigh on profits, against hopes that households and businesses receiving additional help would see a stronger economic recovery.
The Dow Jones industry average
DJIA, -0.57%, lost 0.9% for the week, the S&P 500 Index SPX, -0.72%, 1.5% and tech-heavy Nasdaq Composite Index
COMP, -0.87% 1.5% according to FactSet data.
Still room to run
Even with a robust vaccine roll-out slated for the coming months, that doesn’t necessarily mean that soaring technology stocks, which rose higher during the pandemic, are doomed to fall in prices, especially as more and more people shop conveniently online, working from home and invest in greener companies.
“The areas that Biden will value are already doing well,” said Rhys Williams, chief investment officer at Spouting Rock Asset Management in Bryn Mawr, Pa., On renewable energy, but also on stocks benefiting from Biden’s boost could digital infrastructure plans. “I think they still belong in a portfolio.”
Make stocks of electric cars Tesla, Inc.
TSLA, -2.23%, has been in jeopardy for months, up another 17.1% on Friday in January, while hydrogen fuel cell company Plug Power Inc. PLUG, -9.62% shares rose -9.62% year over year, according to FactSet data by 77.4%.
Likewise online shopping site Etsy, Inc.. ETSY, -3.36% ended Friday up 14.9% year-to-date Stitch Fix Inc.. SFIX, -2.28%,
A personal styling platform for clothing that ended up 25.8% higher on the same route.
Kent Insley, chief investment officer at Tiedemann Advisors, said he had been focusing on single-family home investments, either in debt or equity, even before Biden promised Thursday that the company would empower not only tenants but also mom and pop landlords Rest of the pandemic.
He pointed out the shortage of homes that had occurred in the twelve years since the global financial crisis.
“This is almost a Dekadelong time, in which we are underpinned in relation to the demand,” he told MarketWatch.
“We believe that single-family homes as an asset class benefit from highly accommodative monetary policies, low interest rates and low mortgage rates,” he said.
US stocks and the bond market are closed on Mondays for Martin Luther King Jr. Day, but markets will adjust for Biden’s inauguration on Wednesday as well as an update from the National Association of Home Builders. On Thursday, weekly initial jobless claims and other housing data will take center stage, followed by manufacturing data and sales of existing homes for December on Friday.
See: US economic calendar