Stimulus Passed! What's Next For The Market?

I will not go into every little detail included in the bill that would take much more time than anybody is willing to spare, but many things included in this 5,593 pages relief package are quite scandalous and deserve a few minutes of Googling. Some of the most outrageous spending in the bill is foreign spending and in US public institutions and pension funds that have already received unprecedented amounts of relief funds in the previous bills, many of them still fired up to 60% of their workers. At least some of that money going to these institutions and businesses is planned to be spent in the US, but the bill also includes billions of dollars in foreign aid. Much of that foreign aid is largely not even going towards COVID expenses, but social and general welfare. For instance, supporting women's rights in Pakistan and international food programs. Some outlets have estimated that only 9-10% of the $1.9 Trillion is earmarked for COVID-related expenses, but that is a little confusing because the bill is not just a COVID relief bill. Just to be clear, the entirety of the money was never meant to be COVID relief. The bill is a spending package consisting of an omnibus spending bill (a collection of smaller spending bills) and a COVID relief package. It includes the 2021 appropriations omnibus of $1.4 Trillion alone, the omnibus would have been hotly debated even without COVID. Included in the whole package is also a $900 Billion emergency COVID relief package.

So, what does this mean for the market? The bill includes direct payments of $1,400 to individuals that make under $75k annually, including dependents. This is a small decrease in who can receive the check which will decrease the number of checks that go out compared to the last round, but the payment will be slightly more. Federal unemployment payments of $300 per week will be extended through September. The bill also includes a measure to raise the child tax credit from the current $2,000 to $3,600 for kids under 5 and $3,000 for ages 6-17 for tax year 21.

An influx of capital, in this case, cash from the stimulus will stimulate the economy in the following ways. Consumers have more money to spend on bills, wants, and savings, some businesses will see an increase in activity as people spend money. Demand for certain goods rises as prices increase. We have seen this play out when looking at the Consumer Price Index (CPI) which has been on the rise for a while now. The reason for the price increases is not solely affected by demand, the pandemic has also caused bottlenecks in production and distribution that threw prices off balance. But, higher prices also mean more revenue for companies which is good until the higher prices drive down demand.

The availability of the vaccines and the approach of many states to re-open their economies safely seems to bring the US economy back on track and as soon as all states follow, we should see normalcy in activity returning. The new activity might be different but likely, not less than before the pandemic. Interest rates are on the rise, many people who have kept their jobs or found new ones during the pandemic actually did quite well, maybe reconnected with their families or paid off some credit cards with stimulus money or tax returns that couldn't be spent otherwise under lockdown.

With all that being said, regular readers know that I am a believer in a rapid re-opening and this COVID bill, hate it or love it, brings us a little closer to the end of the tunnel. If everything continues to progress the way it has we will see new highs in the market this year.

Thanks,

The Punkrock Capitalist