Biden’s ‘rescue America’ plan is big. How the trillions of Wall Street and Main Street can help

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MARKET PROJECT

While Americans are tending to wait to be vaccinated, the toll of the coronavirus pandemic continues to rise.

Its cost, both in terms of living conditions and livelihoods, led Elected President Joe Biden to propose another $ 1.9 billion “first step” spending package on Thursday to combat the pandemic, even before he next week to take office.

But as Washington begins to debate another major emergency relief initiative, the turnaround on Wall Street has already begun, as investors worry that the bull market for equities could be threatened by an economy that could overheat and raise borrowing costs, while possibly can also saddle up. the US with unsustainable debt.

“It’s a tug of war,” said Bryce Doty, senior portfolio manager at Sit Investment Associates in Minneapolis. “The current situation is dire, but six months in advance we hope that many more people will be vaccinated.”

Stock markets largely looked beyond the severe chapter of the winter of rising COVID-19 infection rates and deaths, and the resumption of closures in all parts of the US, Europe and China. The focus was rather on the deployment of vaccines and expectations for the incoming Biden government to obtain more funding from Congress to bridge the economy through the coronavirus crisis.

Biden on Thursday pointed to a “crisis of deep human suffering” that is “in sight”, while urging Congress, which will soon be led by Democrats, to authorize $ 1 trillion to raise another $ 1,400 in direct payments to households, as well as $ 440 billion to small businesses and $ 20 billion to accelerate a “gloomy failure” of the national vaccination program.

Sign out: Biden’s Economic Plan to Test Congress’ COVID Depletion

If approved, Congress’s total spending on coronavirus aid over the past year would be $ 4.8 billion, plus the Federal Reserve’s large monetary stimulus and bond-buying program raising its balance sheet to about $ 7.3 billion from $ 4 , Expanded 2 billion from February last year, writes MarketWatch. columnist Michael Brush.

“On the one hand, your investors have concerns that the Fed is withdrawing from stimulus, while the Biden government wants to throw a ton more stimulus into the pandemic,” Doty told MarketWatch. “But the more Biden’s stimulus hits, the sooner the Fed will start pulling back.”

Federal Reserve Chairman Jerome Powell said talks on the sale of bonds by the Fed were premature during a virtual speech hosted by Princeton University’s Bendheim Center for Finance.

Powell also said that due to the pandemic, the Fed wants to avoid ‘people losing the lives they made’.

The Biden administration plans to act quickly to provide relief where it is most needed. Key priorities include dramatically sharpening vaccinations, helping to feed hard-hit restaurants for the hungry, and reopening K-8-grade schools safely.

“We’ll have to move heaven and earth,” Biden said of his goal of inoculating $ 100 million against COVID-19 during his first 100 days in office, as well as his broader rescue plan that some consider a “lifeline “which does not come a moment too soon.

Laura Veldkamp, ​​a professor of finance at Columbia University Business School, compared money spent on strengthening the U.S. economy to investment decisions made in the business world.

“If an American company is going to make a huge investment in low-value projects, it will not be solvable for long,” she told MarketWatch. But if a company prefers to invest in valuable projects instead, especially at today’s low rates, it’s likely to thrive, she said.

“A lot of spending on COVID, it’s very high,” Veldkamp said. But she also sees the potential risk that the Biden plan for markets poses. “We are in a position where a lot of money is in circulation,” she said, warning that it could fuel inflation and future Fed rate hikes, which would raise rates to near zero today.

“But I do not think we should make marginalized communities suffer,” she said, pointing to investor fears of interest rate hikes that could become possible ‘at some point’ off the road, especially as there have been two previous rounds of fiscal stimulus. by the economy, “and we still have really very low inflation.”

Neel Kashkari, president of the Fed in Minneapolis, said on Friday that there was little risk of gunfire inflating above 2%, but even if it did, the Fed had the tools to deal with it.

Investors are worried that they will be stunned by any changes in the Fed’s current easy money policy, but even more so this month as 10-year Treasury yields fell below 1%. This can be compared to a yield of about 1.5% to 3.5% over the past decade.

U.S. equities closed lower for the week on Friday as investors expressed concern about the possibility that Biden’s bailout plan would be partially paid for by higher taxes, including for companies that could weigh the earnings, in hopes of boosting households and businesses help would be strengthened. a stronger economic downturn.

The Dow Jones Industrial Average lost 0.9% for the week, the S&P 500 index 1.5% and technology-heavy Nasdaq Composite Index 1.5% according to FactSet data.

Even with a robust effect of vaccines for the coming months, this does not necessarily mean that high-flying technology stocks higher during the pandemic are doomed to bring prices down, especially as more people have bought comfortably online, worked at home and invested. in greener companies.

“The areas that Biden will focus on have already had good motives,” said Rhys Williams, chief investment officer at Spouting Rock Asset Management, in Bryn Mawr, Pa., About the renewable energy plays, but also stocks that could see a boost. from Biden’s digital infrastructure plans. “I think they still belong in a portfolio.”

Shares of electric car make Tesla, Inc. has been tearing for months and has risen another 17.1% so far in January, while hydrogen fuel cell company Plug Power Inc. According to FactSet’s data, equities rose 77.4% year-on-year.

Similarly, online store website Etsy, Inc.. ends Friday with 14.9% over the previous year, while Stitch Fix Inc.. a personal style platform for clothing, which finished 25.8% higher over the same piece.

Kent Insley, chief investment officer of Tiedemann Advisors, said he was focused on single-family investments, whether in the debt or share room, even before Biden on Thursday promised not only tenants but also mother-and-pop landlords through the rest of the pandemic.

He pointed to the lack of homes that has occurred in the dozen years since the global financial crisis.

“It’s been almost a decade-long period in which we have underpinned demand,” he told MarketWatch.

“We think single-family homes, as an asset class, benefit from very accommodative monetary policy, low interest rates and low mortgage rates,” he said.

U.S. stocks and the bond market closed Monday for Martin Luther King Jr. Day, but the markets will be eligible for Biden’s inauguration on Wednesday, as well as an update from the National Association of Home Builders. On Thursday, weekly initial claims for unemployment benefits will be the focus, as well as more housing data, followed by Friday manufacturing data and existing home sales for December.

See: US Economic Calendar