Building a stronger bridge into 2021: U.S. Congress reaches $900 billion stimulus deal
Today, Congress is expected to pass a coronavirus relief bill, providing approximately $900 billion of new support for the U.S. economy. To cut to the chase, fiscal and monetary stimulus was and is critical for bridging affected households and businesses to the other side of this pandemic. Barring any major surprises, our view is that this latest package should be sufficient to do precisely that—to keep consumer and corporate balance sheets healthy into mid-2021 when large-scale vaccinations slow the virus and allow our lives (and economies and markets) to get back to normal again. The stimulus deal reinforces our positive economic outlook.
The good news is that we don’t need to learn a new alphabet soup of government support programs over the holiday break. The most market-relevant provisions from the stimulus package are all essentially booster shots of the most successful components from the CARES Act back in March. Based on the latest reports, the package will include:
- $600 stimulus checks for the majority of U.S. households (down from $1,200)
- $300 per week of federal unemployment benefits for affected workers (down from $600)
- $284 billion of new, forgivable small business loans (down from $669 billion1)
- Billions more in grants for severely impacted industries—i.e., airlines, movie theaters, entertainment, etc.
The dollar amounts are, clearly, smaller this time around. However, the U.S. economy has also made substantial progress recovering from the lockdowns in the spring, and does not need as much support anymore to continue to grow.
While there is considerable uncertainty around short-term virus trends, our expectation is that the current economic recovery will strengthen and broaden over the course of 2021 as effective vaccines allow dislocated sectors to bounce back. The stimulus deal is important in bridging the gap to that medical solution.
A few other odds and ends before we close out the year:
The two Georgia runoff elections are quickly approaching on Jan. 5. These are consequential, given they jointly will determine the control of the U.S. Senate and the ability of the Biden administration to follow through (or not) on its agenda. Betting markets currently give Republicans a 75% chance of winning at least one seat and retaining control of the Senate. A surprise Democrat victory would likely cause long-term interest rates to rise on an expectation of further rounds of fiscal stimulus in 2021. However, the possibility of corporate tax hikes would be an offsetting headwind for U.S. equities.
• Markets sold off moderately this morning on reports of a mutated, and potentially more infectious, strain of the coronavirus in the UK. There is a lot of speculation and guesswork jumping around the airways this morning. The limited scientific facts that we do know are well-encapsulated here. The most important question for markets is if the vaccines will still prove effective against this new virus strain. Most experts seem to think they will. But we do not know that yet.
Brexit discussions continue to go down to the wire as the Dec. 31 deadline looms. This is of relevance to the UK economy and the British pound and, to a lesser degree, continental Europe —but of almost no significance to the United States.
Thank you for your readership during this truly unprecedented year. We look forward to providing continued insights into the latest market and economic developments in 2021. On behalf of the entire strategist team, we wish you a happy and safe holiday season.
1 The CARES Act provided $349 billion and the Paycheck Protection Program and Healthcare Act provided an additional $320 billion.
These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page.
Investing involves risk and principal loss is possible.
Past performance does not guarantee future performance.
Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.
This material is not an offer, solicitation or recommendation to purchase any security. Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.
The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional. The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.
Please remember that all investments carry some level of risk. Although steps can be taken to help reduce risk it cannot be completely removed. They do no not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Investments that are allocated across multiple types of securities may be exposed to a variety of risks based on the asset classes, investment styles, market sectors, and size of companies preferred by the investment managers. Investors should consider how the combined risks impact their total investment portfolio and understand that different risks can lead to varying financial consequences, including loss of principal. Please see a prospectus for further details.
Indexes are unmanaged and cannot be invested in directly.
Russell Investments' ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners and Russell Investments' management.
Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the "FTSE RUSSELL" brand.
Copyright © Russell Investments Group LLC 2020. All rights reserved.
This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an “as is” basis without warranty.