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

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MARKET SNAPSHOT

As Americans crouch and wait to be vaccinated, the number of victims of the coronavirus pandemic continues to rise.

Its costs, both in lives and in livelihoods, have led President-elect Joe Biden to propose another $ 1.9 trillion “first stage” spending package to help combat the pandemic carnage, even before he took over. next week.

But as Washington prepares to debate another major relief initiative, the handshake on Wall Street has begun, as investors fear the bullish stock market could be threatened by an economy that could overheat and cause costs increase in loans, while potentially burdening 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 in six months, we expect many more people to be vaccinated.”

The stock markets have largely looked beyond this winter’s terrible chapter of rising COVID-19 infection and death rates, and the resumption of blockages in areas of the US, Europe and China. Instead, the focus has been on the vaccine launch and expectations for the next Biden government to secure more funding from Congress to help the economy during the coronavirus crisis.

Biden pointed to a “crisis of deep human suffering” on Thursday that is “in plain sight” while urging Congress, soon to be controlled by Democrats, to authorize $ 1 trillion to obtain another $ 1,400 in direct payments to families, as well as $ 440 billion to small, staggering businesses and $ 20 billion to accelerate what he called the “terrible failure” of the national vaccination program.

Check out: Biden’s economic plan to test Congressional COVID relief fatigue

If approved, total Congressional spending on coronavirus aid last year would amount to $ 4.8 trillion, plus the Federal Reserve’s huge monetary stimulus and bond-buying program that expanded its balance sheet to around $ 7, 3 trillion $ 4.2 trillion last February, writes MarketWatch columnist Michael Brush.

“On the one hand, there are investors concerned that the Fed will pull back from the stimulus, while the Biden government wants to launch a ton of extra stimulus in the pandemic,” Doty told MarketWatch. “But the more Biden’s stimulus takes effect, the sooner the Fed will start to retreat.”

Federal Reserve Chairman Jerome Powell said the conversation about the Fed’s reduction in bond purchases was premature during a virtual lecture on Thursday hosted by the Princeton University’s Bendheim Center for Finance.

Powell also said that the Fed wants to prevent “people from losing the lives they won” because of the pandemic.

The Biden administration plans to act quickly to provide relief where it is most needed. The main priorities include dramatically increasing vaccines, helping the most affected restaurants to feed the hungry and making sure that elementary and high schools are reopened safely.

“We will have to move heaven and earth,” said Biden of his goal of getting 100 million vaccinated against COVID-19 in his first 100 days in office, as well as his broader rescue plan, which some see as a “lifeline.” ”Which may not arrive a moment ahead of schedule.

Laura Veldkamp, ​​professor of finance at Columbia University’s business school, compared the money spent to boost the United States economy with investment decisions made in the business world.

“If a US company spent a lot on low-value projects, it would not remain solvent for long,” she told MarketWatch. But if a company chooses to invest in valuable projects, especially at today’s low rates, it is likely to succeed, she said.

“Spending a lot on COVID is an overvalued amount,” said Veldkamp. But she also sees the potential risk that the Biden plan brings to the markets. “We are in a position where there is a lot of money in circulation,” she said, warning that this could trigger inflation and future hikes in the Fed’s interest rates, which would raise rates above today’s range close to zero.

“But I don’t think we should let marginalized communities suffer,” she said, pointing to investors’ fears of rate hikes that might become a possibility “at some point” in the future, especially since two previous rounds of fiscal stimulus have already taken place. the economy, “and we still have very, very low inflation”.

Minneapolis Fed Chairman Neel Kashkari said on Friday that there is little risk of increasing the shooting well above 2%, but even if that happens, the Fed has tools to deal with it.

Investors fear they will be surprised by any changes to the Fed’s current easy-money policies, but even more so this month, with 10-year Treasury yields retreating above 1%. This compares to an income of about 1.5% to 3.5% for much of the past decade.

U.S. stocks closed lower on the week of Friday, with investors balancing concerns about the potential of Biden’s bailout plan to be partially paid through higher taxes, including for companies that can weigh on profits, against the hope that giving families and businesses additional help would mean a stronger economic recovery.

O Dow Jones Industrial Average lost 0.9% in the week, the S&P 500 index of 1.5% and strong in technology Nasdaq Composite Index 1.5%, according to FactSet data.

Even with the launch of a robust vaccine planned for the coming months, it does not necessarily mean that the high-tech stocks that charged more during the pandemic are doomed to see prices drop, especially as more people are comfortable doing it. online shopping, working from home and investing in greener companies.

“The areas that Biden will emphasize have already had good moves,” said Rhys Williams, chief investment officer at Spouting Rock Asset Management in Bryn Mawr, Pennsylvania, speaking of renewable energy games, but also of actions that could see a boost from Biden’s plans of digital infrastructure. “I think they still belong to a portfolio.”

Electric car brand shares Tesla, Inc. have been in a rip for months and ended Friday with an additional 17.1% so far in January, while hydrogen fuel cell company Plug Power Inc. shares rose 77.4% year-to-date, according to FactSet data.

Likewise, online shopping website Etsy, Inc. ended Friday with an increase of 14.9% in the year, while Stitch Fix Inc. personal styling platform for clothes, finished 25.8% higher in the same stretch.

Kent Insley, chief investment officer at Tiedemann Advisors, said he has focused on investments in single-family homes, both in debt and stock, even before Biden on Thursday promised not only tenants but also family owners through the rest of the pandemic.

He pointed to the scarcity of home construction that has occurred 12 years since the global financial crisis.

“It is a period of almost a decade when we have built little on demand,” he told MarketWatch.

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

US equities and the bond market are closed on Monday for Martin Luther King Jr. day, but markets will tune in to Biden’s ownership on Wednesday, as well as an update from the National Association of Home Builders. On Thursday, weekly initial unemployment benefit applications will be the focus, as well as more housing data, followed by Friday by existing manufacturing and sales data for December.

Watch: US Economic Calendar