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A Stimulus Bill is Finally Coming - Is the Bill Worth the Wait?

December 21, 2020
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Monday Morning QB - Market Observations:

  • Stimulus Plan Passes – Looks Like a "Buy the Rumor, Sell the News" Event
  • Vaccine Number Two Gets the Go-Ahead
  • Federal Reserve Gives Banks the Green Light to Restart Stock Buybacks
  • Fed Chairman Powell Says Low Rates Will Remain Until at Least 2022 and Highlights U.S. Growth Potential Over the Next Three Years
  • Currently, the Economy is Slowing with the Resurgence of the Coronavirus.
  • Small-Cap Stocks Continue to Outperform
  • Tesla Officially Joins the S&P 500 Index
  • On a Completely Irrelevant Note – The Buffalo Bills Won Their First AFC East Championship in 25 Years…As a Suffering Fan, breaking a 25-year drought is Noteworthy

Monday Morning QB - Market Performance:

The major U.S. indexes reached record highs as expectations grew for the passage of another federal coronavirus relief package.

The Dow Jones Industrial Average added 133 points finishing the week at 30,179, a gain of 0.4%. The technology-heavy NASDAQ Composite rebounded 3.1%, ending the week at 12,756.

By market cap, the large-cap S&P 500 added 1.3%, while the mid-cap S&P 400 and small-cap Russell 2000 added 2.1% and 3.0%, respectively.

Congress Provides Some Holiday Hope to Those in Need

The mini $900 billion in Covid-19 relief bill for those Americans who really need it looks to be on the way. With the negotiations finished, Congress only needs to vote.

Some of the key provisions of the bill include much need additional unemployment benefits ($300 a week), direct checks, additional funding for vaccine distributions, and rental assistance to slow down evictions.

We have written in the past about the "V" vs. "K" recovery. Economic recoveries are based on GDP, Gross Domestic Product, which clearly shows a "V" recovery.

"K" recovery, although not an economic term, shows the difference in the recovery for different Americans. Unfortunately, many Americans remain under- or un-employed in our current "V" shaped recovery, representing the bottom of the letter K.

For those Americans, some help cannot come fast enough.

The Federal Reserve Says a Growing Economy is Coming Soon

Emergency lending programs, near-zero interest rates, and bond-buying programs represent the Federal Reserve's unprecedented moves to help our economy navigate the peril caused by Covid-19.

In his final press conference of 2020, Fed Chairman Powell stated the Fed would continue these current programs "until substantial further progress has been made." In other words, the all hands on deck approach will not end any time soon, if not for years.

If you wonder about our Federal Reserve Chairman's view on the current stimulus talks, he did not mince words. The Federal Reserve members have been out in front of fiscal stimulus for months. Their consensus is and has been more fiscal stimulus on top of the Federal Reserve's monetary policy is preferred.

The Federal Reserve believes they underestimated our economy's ability to bounce off the bottom and do not want to do the same with the post-vaccine recovery.

The Federal Reserve boosted its economic growth forecast for the U.S. economy for each of the next couple of years.

Let's all hope that the economic boom the Fed sees becomes our reality.

Consensus Stock Market Predictions for 2021 Align Around Another Good Year for Your Portfolios

As a person who finds predictions basically worthless, especially when forecasting future stock market returns, I have found myself agreeing with market pundits looking for good returns in 2021.

However, nothing is scarier for stocks than when everyone thinks the future looks promising.

I will never forget all the rosy 2008 forecasts at the end of 2007, and I am sure I don't need to remind you how 2008 turned out.

Predictions are simply a guess, and things will happen in 2021 that no one saw coming. It happens every year! Remember all those Covid-19 warnings/predictions at the end of 2019? Yeah, me neither.

However, I do think there are reasons for optimism.

With the appointment of Janet Yellen as the new Treasury Secretary, it's easy to believe that there will be good coordination between Secretary Yellen and Fed Chairman Powell. Janet Yellen's last job was Chairman Powell's current job.

Our Federal Reserve has signaled that they will continue to push money into our economy, backstopping the bond market and keeping interest rates low.

The Biden Administration has signaled the desire to do a bigger stimulus package right out of the gate to help Americans who are still reeling economically from the pandemic. Hopefully, the mini-stimulus agreed to over the weekend will provide help soon with additional support to follow in early 2021.

People who have been part of the economic recovery to date will be ready to take the vaccine and get back to "normal".  

Dr. Anthony Fauci, the nation's senior official for infectious diseases, predicts the United States could begin to achieve early stages of herd immunity against Covid-19 by late spring or summer. 

Vaccinations combined with potential herd immunity should be enough for many people to knock the dust off the canceled vacation and travel plans sooner than later.

Our companies are also sitting on low inventory and will need to ramp things up to meet life demands with contained COVID-19. This means more jobs and all that goes with it.

Lots of reasons for optimism, and I like to look at the world through the lens of hope!

It has been a challenging year for everyone, and everyone can benefit from a little shared kindness in 2021, especially for those where the recovery is elusive.

My 2021 challenge for myself is to donate more time and money to worthy causes, knowing that charity is needed, and that less charity was available in 2020 due to the virus in terms of both time and money. 

Maybe becoming a more charitable nation can help heal some of our nation’s divisions. It certainly can’t hurt.

Merry Christmas and Happy Holidays from our families to yours!

(sources: all index return data from Yahoo Finance; Reuters, Barron's, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, www.stocksandnews.com, www.chaikinanalytics.com Chaikin Analytics, www.marketwatch.com, www.BBC.com, www.361capital.com, www.pensionpartners.com, www.cnbc.com, www.FactSet.com, W E Sherman & Co, LLC)
Hayden Royal is an investment adviser registered under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply any level of skill or training. The information presented in the material is general in nature and is not designed to address your investment objectives, financial situation or particular needs. Prior to making any investment decision, you should assess, or seek advice from a professional regarding whether any particular transaction is relevant or appropriate to your individual circumstances. This material is not intended to replace the advice of a qualified tax advisor, attorney, or accountant. Consultation with the appropriate professional should be done before any financial commitments regarding the issues related to the situation are made.
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