The American Rescue Plan Act of 2021 reflections

After a significant amount of wrangling, wheeling and dealing, the Senate agreed on the Biden Administration’s rescue package initially passed by the House including a $15 minimum wage stripped from the bill in the Senate. Expectations are that the bill will be passed in the House with no changes and sent to President Biden for his signature. The President is scheduled to speak to the nation on Thursday night, tonight.

The best analysis we have read focuses on the targeting of the Rescue package on middle and lower income Americans who are more likely to spend the liberal distributions through direct checks, extended and increased unemployment aid, increased child tax credits, funds to help municipalities and states to get children back in school as well as plug gaps in funding for public transportation and other services hurt by the pandemic. Essential to this package is funding for Covid testing and vaccinations.

A significant reduction in child poverty rates as well as the overall reduction in poverty rates are historic. Polling for the bill reflects consistently 2/3 of Americans are in favor as well as a plurality of Republicans. However, not a single vote in favor of the bill has come from Republicans. Politically, this will clearly be an issue in the mid-term elections in 2022. 

Markets

Markets have been very volatile since last week's newsletter and that volatility continues today as this is written. The rule in the past has been when severe sell offs happen in the markets, correlation increases between equity asset classes. Not so with recent volatility. Nasdaq entered correction territory (trading 10% or more below recent highs) while the Dow has reached new record highs. The reason for the recent sell off especially in high flier Nasdaq names has been an increase in intermediate and long term interest rates. One selloff last week was attributed to Fed chairman Powell acknowledging that inflation could increase in the short term. Nasdaq growth companies stock prices are linked to interest rates because their earnings and valuation are linked to the dividend discount model of which interest rates are a critical component. Today, as interest rates stabilize, Nasdaq is rallying (increasing from it’s previous dip).

Historic Look-back

We all remember the reaction to Obama’s rescue plan in 2009-TARP. It led to the creation of the Tea Party and historic mid-term defeats for Democrats in 2010. Much of the backlash was directed at the banks, large wealthy institutions and those who worked for them who were very wealthy and were ultimately rescued by government financial assistance. Main street Americans were angry. The pandemic has posed a different set of challenges. This last year of hardship was different from the financial meltdown we saw a decade ago. Americans favor this rescue bill by 2/3rds so we shall see how this rescue package ages over time. Linked below is an interesting article in regard to difference between 2009 and 2021.

Link: https://www.cnn.com/2021/03/08/politics/biden-covid-relief-bill-republicans/index.html

Optimism

There is increased optimism with the latest of the strictest public health guidelines lifted, the opening of restaurant dining, and a near term schedule for early education school reopening. To think that this time last year we were about to enter a massive shut down and endure several months of unknown circumstances. While uncertainties remain, this at least feels like progress out of the dark. And in the literal sense, we get an hour of daylight back starting this Sunday March 15th! Spring is near. And so approaches the April 15th deadline for tax filing and last minute contributions to IRAs.