New President New Stimulus

Currently, practically all the articles written in any financial paper, all mention one thing, COVID-19 and its impact. Recently, we have seen a bounce back in the hardest hit sectors, but there is still a long way to go. As the world crumbled and brought to its knees, we are now left with a final gameplan which is a fast paced procedure to give out the vaccine against the pandemic. In the meantime, as stated previous articles, governemnts and central banks are using fiscal and monetary policies to help economies stay afloat.

The newly elected US president Joe Biden, unveiled a $1.9 trillion coronavirus package which is designed to support households and businesses through these difficult and unprecedented times. Biden’s presidential ability will be tested as his number one task will be to navigate the country out of a pandemic disaster cobbled with a deteriorating ecomony.

The main aim of this package, called the American Rescue Plan, is to help the country combat the public health crises as well as injecting new cashflows to help stimulate the economy by delivering direct financial aid to families and businesses.

American economists believe that this policy will be accepted by a divided congress. They believe that in addition to improving their local economy, this plan would support consumer discretionary stocks, financials, health care, energy, industrials and real-estate investment trusts.

Around $1 trillion of Biden’s plan is dedicated to households and individuals. Another $400 billion is earmarked for the pandemic response, including vaccines and testing. Some $440 billion is meant for struggling local and state governments. Apart from injecting capital, Biden is proposing the expulsion of $10,000 worth of student loans per person.

Part of the $1 trillion package tackles those citizens who have either suffered from unemployment or a reduction in their salary. Biden issued this plan to increase those who got a reduction in their salary, from $600 to $2,000 a month. The plan also caters for unemployed citizens, which the country has recorded a new record of nearly 1 million people.

According to the Bank of America this fiscal policy is the best solution to compliment the current interest rates to direct the economy. These increases in benefits will help to support growth when businesses and household spending falter. The bank is predicting that if this policy plan goes through, the American economy will increase by two percentage points within the quarter.

Encouraging data suggests that the $900 billion stimulus enhanced consumer spending in January. In fact, Bank of America stated that card spending jumped 20% since January 1. With this in mind, the said bank raised its first quarter target for economic output to 4% from 1%. However, it also cut its second quarter GDP forecast to 5% from 7%.

Economists believe that the this proposal will have more effect on company revenues with tax incentives for companies who have diminished in stature while higher tax returns will be introduced for companies whose performance was stable or even yet, prospered. In turn, economists believe that this may create volatility in one of the leading sectors that thrived in 2020 – technology sector.

On the other hand, Biden has a long-term vision for green energy especially in the motor vehicle sector. His vision is to create more jobs in this sector and battle carbon dioxide. In a previous article, I wrote that Biden is so focused on battling climate change, that we can see the American Government issuing the first green bond.

Similarly, the same happened in infrastructure equities. With the plan to improve infrastructure around America, this sector might be one of the likely beneficiaries. With Biden elected, there was a spike in one of the most important perpetual sectors, the healthcare sector.

In general, there was a positive shift since November last year. In fact, we even saw the market improve all across Europe. This clearly shows that the world has accepted the change in the US administration and we have also witnessed the market moving higher during his inauguration ceremony on Wednesday.

While a change in the US president always brings with it new changes, which may alter the portfolios of some investors, as believers of long term investing, we strongly believe that investment decisions should not be driven by short-termism. However, long term financial goals should be reached through a diversified portfolio which matches the needs, objectives and risk profiles of investors.

Matthew Miceli Donnelly, ICIWM, B.Com Banking & Finance & Management (Melit.), B.Com (Hons.) Management, MBA (Melit.), is an Investment Advisor at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The Company is licensed to conduct investment services by the MFSA and is a Member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected]