The new stimulus package approved by the House and Senate was signed by President Trump Sunday night. The president had proposed upping the aid to individuals to $2,000 after the bipartisan agreement had been reached. Garnering support for that proposal would likely have proven difficult and economic urgency made signing the bill the logical choice. The need for additional support was evidenced by a 1.2% decline in disposable income (Figure 1).
Key Points for the Week
- A new support package for the unemployed, airlines, and small businesses that provides direct payments to most Americans was signed by the president.
- Disposable income dropped 1.2% as gains in wages weren’t large enough to overcome declines in federal pandemic aid distributions.
- Great Britain and the European Union reached a tentative agreement on how their economies will interact post-Brexit.
Great Britain and the European Union (EU) reached a deal on Brexit that will establish how the island nation will interact with its neighbors in coming years. The deal is expected to be approved by Great Britain and each of the EU countries. No tariffs will be enacted, but trade across the channel will prove more difficult.
Stocks dipped slightly last week. The S&P 500 gave up 0.1%. The MSCI ACWI index dropped 0.4%. The Bloomberg BarCap US Aggregate Bond Index gained 0.1%. Economic releases will be light this week.
Many of us will welcome the end of a trying year. Everyone has experienced hardship of some kind in 2020 and likely much more than in a normal year. Yet, markets rebounded sharply from a COVID-induced decline and corporations proved far more resilient than many expected. This year has reminded us that risk looms from both expected and surprising sources. We look forward to a new year and keeping you informed of the challenges that face us during our investment journeys.
The Check is in the Mail?
As expected, Congress passed a $900 billion economic relief and spending bill on Monday. In an unexpected twist, after an agreement was reached, the president communicated dissatisfaction with the $600 relief payments for individuals. The challenge of garnering support for a new package and the shortness of time likely contributed to the president signing the bill Sunday evening.
The last-minute signing should not have been surprising. The approval of a follow-up bill to the CARES Act has been fraught with delays and political maneuvers that have postponed additional support reaching Americans.
The most important features of the bill are designed to reduce permanent economic damage to individuals while the approved vaccines, which will allow curtailed activities to resume at higher rates, are distributed. The bill provides some extra benefits to those most affected by the pandemic:
- Unemployment benefits are increased by $300 per week.
- Pandemic Unemployment Assistance, which targets freelance and self-employed workers, will be extended for another 11 weeks to expire mid-March.
- For workers who exhaust state benefits, another 13 weeks of additional unemployment compensation is available through Pandemic Emergency Unemployment Compensation.
- A $600 payment will be issued to most Americans, and many higher earners will receive a reduced amount.
As a package, the bill is designed to keep individuals who haven’t returned to work afloat until the economic recovery and restart. The unemployment extensions and support are expected to be most valuable in this effort, while the broad payments reduce financial pressure on those who have stayed on the job.
Helping former employers of those who lost their jobs is also a key objective. The Paycheck Protection Program, designed so small businesses can keep people on the payroll, receives another $284 billion. Airlines, transit systems, and entertainment venues all get additional support as they have been especially hard hit by efforts to contain the virus.
Economic data continue to suggest additional support is needed to help those most affected and push the economy back into recovery mode. Wages are increasing but not as quickly as government aid is being reduced. Initial unemployment claims remain elevated. Without a bill, that aid would have decreased more rapidly and forced individuals and families to make difficult decisions that would likely further slow the recovery.
In the end, the most important economic support package remains the vaccine. Increasing the rate of vaccinations should start supporting the economy as more people receive the two shots expected to protect more than 90% of those who receive it. The economic gains will initially be small while doses are limited and the vaccine is rightly being provided first to those at greatest health risk.
As the vaccine expands to a wider group, we expect restaurant traffic to recover first as those vaccinated will expand their activities incrementally. Remember the vaccine requires two doses and takes about one month to reach full effect. During the period just before the first shot, some people are likely to decrease activity as they are nearing a reduction in risk.
The long recovery from COVID-19 is in the early stages and will benefit from a boost until the vaccine creates a broader increase in activity. As the vaccine expands to a wider range of individuals, expect the recovery to accelerate but unevenly. Some new ways of doing things will last. Some activities will be less popular. As we wrap up this long year, many of us are looking forward to making some changes in routine after the last nine months. Here’s looking forward to a different 2021! Happy New Year!
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds
The Russell 1000® Growth Index measures the performance of the largecap growth segment of the US equity universe. It includes those Russell 1000® companies with higher price-to-book ratios and higher forecasted growth values.
The Russell 1000® Value Index measures the performance of the largecap value segment of the US equity universe. It includes those Russell 1000® companies with lower price-to-book ratios and lower expected growth values.
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