Biden’s “rescue of America” ​​plan is big. How his billions could help both Wall Street and Main Street

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MARKET OVERVIEW

As Americans crouch down and wait to get vaccinated, the toll from the coronavirus pandemic continues to rise.

Its costs, both in human lives and livelihoods, prompted President-elect Joe Biden on Thursday to propose another $ 1.9 trillion spending package to help tackle the carnage of the pandemic, even before he takes up his post next week.

But as Washington prepares to debate another big relief initiative, the writhes on Wall Street have already started as investors fear the equity bull market is threatened by an economy that could overheat and cause prices to rise. borrowing costs, while also risking sinking. the United States with unsustainable debt.

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

Stock markets have widely looked past this winter’s terrible chapter of skyrocketing rates of COVID-19 infection and death, and resumption of lockdowns in parts of the United States, Europe and from China. Instead, the focus has been on the vaccine rollout and the expectations of the new Biden administration to secure more funding from Congress to link the economy to the coronavirus crisis.

Biden highlighted on Thursday a “crisis of deep human suffering” that is “in plain sight” while urging the soon-to-be Democrat-controlled Congress to allow $ 1 trillion to secure an additional $ 1,400 in direct payments to households , as well as $ 440. billion to undermine small business and $ 20 billion to speed up what he called a “dismal failure” of the national immunization program.

Check-out: Biden’s economic plan to test congressional fatigue against COVID

If passed, total congressional spending over the past year on coronavirus aid would reach $ 4.8 trillion, plus the Federal Reserve’s massive monetary stimulus and bond-buying program. which widened its balance sheet to about $ 7.3 trillion from $ 4.2 trillion last February, 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 throw a ton of additional pandemic stimulus,” Doty told MarketWatch. “But the more impact Biden’s stimulus measures have, the sooner the Fed will start pulling out.”

Federal Reserve Chairman Jerome Powell said talks about cutting Fed bond purchases were premature, during a virtual conference hosted by the Bendheim Center for Finance at Princeton University on Thursday.

Powell also said the Fed wanted to prevent “people from losing the lives they made” because of the pandemic.

The Biden administration plans to act quickly to provide relief where it is needed most. Top priorities include a dramatic increase in vaccinations, helping hard-hit restaurants to feed the hungry, and reopening primary schools safely.

“We will have to move heaven and earth,” Biden said of his goal to vaccinate 100 million people against COVID-19 in his first 100 days in office, as well as his broader bailout that some see as a “lifeline” that may not come a moment too soon.

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

“If an American company were to spend a huge amount of money on low value projects, it wouldn’t stay solvent for long,” she told MarketWatch. But if a company chooses to invest in value projects instead, especially at the current low rates, it will likely thrive, she said.

“Lots of spending on COVID, that’s a very high value,” Veldkamp said. But she also sees the potential risk the Biden plan poses 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 Fed interest rate hikes, which would push up rates above the current near zero range.

“But I don’t think we should let marginalized communities suffer,” she said, highlighting investor fears that rate hikes would become a possibility “at some point,” especially since two previous ones. Fiscal stimulus cycles have already taken place. going through the economy, “and we still have really, really low inflation.”

Minneapolis Fed Chairman Neel Kashkari said on Friday that there was little risk of inflating shots well above 2%, but that even if it did, the Fed has tools to deal with it.

Investors feared they would be blinded by any change in the Fed’s current easy money policy, but more so this month as 10-year Treasury yields edged down above 1%. This compares to a return of around 1.5% to 3.5% for much of the past decade.

U.S. stocks closed lower for the week on Friday, as investors balanced concerns that Biden’s bailout could be partially funded by higher taxes, including for companies that could weigh on profits, against the hope that giving more help to households and businesses would mean a stronger economic rebound.

the Dow Jones Industrial Average lost 0.9% on the week, the S&P 500 index 1.5% and technology Nasdaq Composite Index 1.5%, based on FactSet data.

Even with a robust vaccine rollout planned for the coming months, that doesn’t necessarily mean that the stocks of high-flying technologies that have increased during the pandemic are doomed to see prices come down, especially as more and more people have become comfortable shopping online, working from home and investing. in greener companies.

“The areas that Biden will focus on have already had some good moves,” Rhys Williams, chief investment officer at Spouting Rock Asset Management, said in Bryn Mawr, Pa., Of renewable energy games, but also shares that could see a boost from Biden. digital infrastructure plans. “I think they still belong to a wallet.”

Electric car brand shares Tesla, Inc. have been on a tear for months, and on Friday ended another 17.1% so far in January, while hydrogen fuel cell company Plug Power Inc. shares are up 77.4% year-to-date of the year, according to FactSet data.

Likewise, online shopping site Etsy, Inc. finished Friday up 14.9% year-to-date, while Stitch Fix Inc. a personal style platform for clothing, finished 25.8% higher on the same stretch.

Kent Insley, chief investment officer at Tiedemann Advisors, said he was focusing on single-family home investments, whether in debt or equity, even before Biden on Thursday pledged to support not only tenants, but also owners remains of the pandemic.

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

“It’s almost a period of a decadelong where we’ve underbuilt relative to demand,” he told MarketWatch.

“We believe that single family homes, as an asset class, benefit from a very accommodating monetary policy, low interest rates and low mortgage rates,” he said.

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

See: US Economic Calendar