On Thursday, President-elect Joe Biden unveiled the details of the $1.9 trillion coronavirus relief stimulus package. The package is called the ‘American Rescue Plan’ and is created in hopes of supporting households and businesses throughout the pandemic.
The stimulus calls for direct payments of $1,400 to most Americans, which will bring the total relief to $2,000. This includes the $600 payments in December. Biden’s proposal is already causing confusion and anger for different reasons. Some say that the expected that the package would include $2,000 direct payments on top of the $600. On the other hand, there are others saying that the government will have a very hard time finding enough resources to pay off such a high package.
The $1.9 billion coronavirus stimulus package may work as a double-edged sword for investors. While it might help to sustain optimism for the further revival of the economy, it can also raise worries over how the country will for this package.
The highly anticipated package has initially helped lift the S&P 500 index by nearly 3%. On the other hand, we saw a slide in Treasuries, because there are huge worries about how the government will pay for it. Experts are saying that the government will need to fund the spending with more debt, which will further push yields to the highest levels since March 2020.
Some experts are saying that right now, the market is celebrating the additional stimulus because they see it as a way towards fully reopening the economy. But, on the other hand, there are some that say that markets will have to pay for this in the form of sharply higher interest rates or increasing tax rates. This, in turn, could cap equity valuations.
Some investors have already noted that they are worried about the stock valuations. They are saying that earning will have to be significantly strong and high in the coming year to justify the stimulus.
After the announcement of the package, the S&P 500 is trading at 22.3 times forward earnings estimates. It is near its all-time high of 24.4, which was recorded in March 2000. On Thursday, the S&P 500 dipped about 0.4%. Since the start of January, it has dipped approximately 1.1%. This year, significantly successful were cynical stocks that benefit from stimulus packages. This includes banks, which are p over 10% for the year to date.
On the other hand, companies that were doing exceptionally well last year are down. For example, the technology sector is down nearly 1 percent. Rising yields, which is predicted because of the stimulus package, will threaten the companies with longer-duration cash flows, including technology and growth shares.
How is the money going to be spent?
With the proposed stimulus, President-elect Joe Biden calls for several things. First of all, it is additional direct payments of $1,400 to December’s $600 payments, bringing it up to a total of $2,000.
The plan also envisages the increase of the federal, per-week unemployment benefit to $400 from the existing $300 and extending it through the end of September. The federal minimum wage should also be increased to $15 per hour, while the period of the eviction and foreclosure moratoriums will be extended until September.
Out of the $1.9 trillion, $350 billion will be allocated to the local government aid, $170 billion will be spent for K-12 schools and institutions of higher education, $50 billion for Covid-19 testing, $20 billion for a national vaccine program in partnership with the states, localities, and tribes.
According to president-elect Biden, the plan is the first of the two major spending initiatives he will seek in the first few months of his presidency. The second bill, which is expected in February, will be aimed at created new jobs, reforming infrastructure, combating climate change, and advancing racial equity.
Democratic leaders were quick to support the decisions and measures announced by the president-elect. On the other hand, there are others claiming that such a high stimulus package might overwhelm the economy of the country. Some are saying that it could lead to increased taxes and interest rates, which could lead to further problems for investors in the USA.
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US House passes new stimulus bill, new vaccine on the way
House Democrats recently passed the $1.9 trillion American Rescue Plan. The voting took place on Saturday morning. The new plan envisages a third stimulus check up to $1400 for taxpayers and their dependents. Those earning up to $75,000 will receive a check of $1,400.
Those who earn over $100,000 a year won’t receive a stimulus check. The payments will be based on either 2019 or 2020 income. The bill now should be voted in the Senate, the Democratic representatives are hoping for Biden to sign the Stimulus around March 14.
Biden should not have a problem passing the plan, as both the House and Senate are controlled by Democrats. The Stimulus plan provides a huge infusion of the US Dollar into the economy, which, theoretically, should be able to push the value of the USD. Some experts are saying that it could have a positive influence, considering the effect of the previous stimulus. However, in the long run, it is hard to say exactly how the plan will influence the state of USD.
Finally, the House just passed the #AmericanRescuePlan to provide Americans with urgent relief and bold solutions that match the severity of this once-in-a-hundred-year-crisis.
Read Chairman @RepRichardNeal's full statement
— Ways & Means Committee (@WaysMeansCmte) February 27, 2021
Traders should try to focus on the ongoing events and indicators to make sure that they are following the current trends.
Influence of stimulus on USD
Compared to the previous weeks, the greenback is showing fair stability. Although the prices dropped slightly, it was not enough to cut down the last Friday’s biggest gain seen in the US dollar index since June 2020. The US Dollar Index measures the USD against a basket of major currencies.
It has dropped slightly about 0.04%. The retail traders are focusing on different types of indicators, while also looking an eye on the US bond markets, while have gained yearly highs. This is increasing the global economic recovery hopes from Covid-19. The moves in the bond trading market are helping the economic data as they represent massive drivers for the currency market.
The treasury yields also seem to be well ahead of economic fundamentals. Despite a strong US economy, there are some experts that are claiming that the US might weaken in the coming weeks. What will happen is very hard to say due to the swift changes happening in the market.
If the US Stimulus package manages to strengthen the US economy, it could potentially help the state of the US dollar as it can increase the demand on USD. However, the ongoing events around the world, including higher hopes for vaccination to speed up, might change the expectations.
Covid-19 in USA & Vaccination
Up until now, there were two vaccines available for US citizens – Moderna and Pfizer. Recently, Jonhson & Johnson’s vaccine was also passed by CDC. The first shots of the J&J vaccine could be administered as early as Tuesday, the representatives of the Biden administration are claiming.
However, the representatives also noted that in the beginning, the distribution might be a little uneven. J&J noted that they are expected to deliver as much as 4 million shots this week only. By the end of the month, the company plans to deliver 20 million shots.
So if you are comparing headline efficacy numbers, you are comparing apples to oranges
This vaccine is safe, highly effective
My older cousin with comorbid conditions called me today saying he's eligible for vaccination and wonders if he should get J&J if available
— Ashish K. Jha, MD, MPH (@ashishkjha) February 27, 2021
The rollout of the new vaccine gives the US further hopes for getting out of the situation. However, how fast the country will manage to vaccinate its population is unknown.
British Pound and Euro Remain Under Pressure
Markets Open Slightly Up Amid Persistent Inflation Concerns
Following a turbulent week on Wall Street that has so far seen something of a sell-off in many major growth names, Wednesday is bringing a sense of calm to both equities and the forex market. With that said, the USD remains marginally stronger as treasury yields continue to increase. This has led to renewed pressure on the Euro, and high-flying Pound both. All of this comes as Federal Reserve Chief Jerome Powell has continued to reiterate his stance to firmly support the economy with no fiscal tightening measures imminent. These comments stirred markets that opened slightly higher several days ago.
Euro Weakness Remains Despite Positive Data
Upward revisions of German GDP data for the 4th quarter of 2020 brought some much-needed positivity to the Eurozone economically and supported a Euro that has displayed consistent weakness as the bloc continues to struggle slowly through the COVID-19 pandemic. The figures showed an improvement of 0.3% on a quarter by quarter basis, up from the earlier number of 0.1%. The year-on-year number was also revised to show an economic contraction of 2.7%, down from the initial figure that was a negative 2.9%.
These numbers have delivered a much-needed boost to the region and its largest economy although it has barely been reflected in the strength of the common currency which is struggling below 1.2150 as the US treasury yields ticked higher and in a move that has strengthened the Greenback.
Sterling Slides From Record Highs
Unlike its EU counterpart, forex trading in the British Pound has been rampant since Brexit was finally realized. Overnight the currency hit new multi-year highs though it has dropped back significantly at the start of Wednesday mainly due to increased strength in the Dollar, and a somewhat over-zealous hope that the UK is fast-tracking the removal of restrictions amid their successful vaccination campaign.
This, along with an idea that the Bank of England will move to increase rates sooner rather than later would appear to be nothing more than rumor, and the quick spike that was noted overnight has faded this morning just as fast. With that said, the Pound still remains in a very strong position at above $1.41, and forex brokers note it is holding much better than the Euro against a strengthened Dollar.
Market Bounces Back on Supportive Comments
Buoyed by a supportive congress testimony given by the chief of the Federal Reserve on Wednesday, major names on Wall Street have bounced back slightly following a difficult start to the week. There has been much talk of inflation ahead and this would seem to have spooked some as particularly high-flying tech names sold-off yesterday.
Powell though commented that the Fed remains completely supportive of the economy with no plans to raise interest rates and distanced himself from the idea that inflation is a concern. This seems to have helped the markets bounce back today as they opened marginally higher.
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