Stimulus Packages | Blackhawk Wealth Advisors

You can’t say the U.S. government hasn’t been fiscally responsible in the war with COVID-19. The crippling effects of the global virus whacked our economy harder than y hit since the Great Depression. While the debate goes on as to how to pay for the trillions of dollars the government issued in various relief and economic stimulus packages, the fact remains our country was in dire straits. The severe economic toll from the outbreak has come a long ways back towards better health, thanks to the government’s emergency fiscal policies and stimulus provided by the Federal Reserve’s monetary policy. There has been a lot both since March of 2020. Here’s a look at the effort.

U.S. Fiscal Policy: Stimulus and Relief Packages

The first relief package, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, since nicknamed Phase One, was signed into law on March 6, 2020 by President Trump. It allocated $8.3 billion to primarily fund vaccine research and give state and local governments money to fight the spread of the virus.

The second relief package, the Families First Coronavirus Response Act, or Phase Two, was signed into law on March 18, 2020. It allocated $3.4 billion in relief. Its provisions included funding and cost waivers to make COVID-19 testing free for all, and mandating companies with fewer than 500 employees provide paid sick leave for those suffering from COVID, as well as providing a tax credit to help employers cover those costs.

The CARES Act came next. This third stimulus package was by far the biggest. The Coronavirus Aid, Relief, and Economic Security Act (nicknamed the CARES Act) was signed into law on March 27, 2020. The $2.3 trillion CARES Act is the largest single relief package in U.S. history. The massive stimulus money aimed to aid everything from unemployed parents, to business owners, mortgage borrowers, hospitals and universities. Some highlights of the CARES Act:

• One-time, direct cash payment of $1,200 per person, plus $500 per child.
• Expansion of unemployment benefits to include people furloughed, gig workers, and freelancers until Dec. 31, 2020.
• Additional $600 of unemployment per week until July 31, 2020.
• $500 billion in government lending to companies affected by the pandemic.
• More than $130 billion for hospitals and health care providers.
• Almost $60 billion for schools and universities.

A supplementary stimulus package, nicknamed Phase 3.5, was signed into law on April 24, 2020. It appropriated $484 billion, mostly to replenish the Paycheck Protection Program (PPP),and contained additional funding for hospitals and COVID-19 testing.

Package 4 came on Dec. 21, 2020, the U.S. Congress passed a $900 billion stimulus and relief bill attached to the main omnibus budget bill. President Trump signed the bill on Dec. 27, 2020, but he urged Congress to increase the direct stimulus payments from $600 to $2,000. The direct payments of $600 was given to individuals making less than $75,000 per year. Another $325 billion was provided to help small businesses. Transportation, education and healthcare agencies were are beneficiaries of this stimulus.

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021, implementing a $1.9 trillion package of stimulus and relief. This was Package 5. Roughly $350 billion of the total funding will go to state and local governments. The key points of the plan as it was passed are:

• Direct cash payments of up to $1,400 for individuals earning less than $75,000 a year plus $1,400 per dependent.
• Increasing the maximum annual Child Tax Credit from $2,000 a child to $3,000 per child between the ages of 6 and 17, and $3,600 for each child under the age of 6.
• $300 a week in expanded unemployment insurance lasting through September 6.
• $10,200 in unemployment benefits are free from federal taxes for households with incomes under $150,000 a year.
• $55.5 billion for the Centers for Disease Control and Prevention to administer and distribute vaccines, diagnose and track COVID-19 infections, and purchase testing and PPE supplies.
• $40 billion in funds for child care, including $15 billion in child care assistance and $25 billion to help child care providers continue to operate and meet payroll.
• $15 billion to support airline industry workers.

More stimulus is expected. The American Family Plan of 2021 and the American Jobs Plan 2021 combine to another $4.5 trillion in economic stimulus. We have seen an explosion in stimulus passed and proposed. There are major pros and cons, great uncertainty, questions needing answers and heated debates overhanging the stimulus. For one, U.S. Treasury Secretary Janet Yellen says, “Act big” regarding stimulus. She contends that the benefits outweigh the costs of a higher debt burden. We shall see….

TAKING PERSPECTIVE…

Proper Perspective: In our hectic and often hard to comprehend world, it is very easy to lose perspective. You may agree it is sometimes difficult to see the big picture. The media often doesn’t help with this, but unfortunately instead encourages us to see things in a most negative light. Here is hopefully a pause to gain positive perspective, especially now with stay at home orders in effect. Remember, COVID-19 will one day be COVID-PAST.

Famous Quote On This Day May 6: “About one-fifth of the people are against everything all the time.”
~ ~ Robert Kennedy, 1964

What Happened On this Day, 1889 — The Eiffel Tower is officially opened to the public at the Universal Exposition in Paris.

MARKET ANALYSIS

INDICATORS OF INTEREST

• Market’s Current Signal: BULLISH. Analysis of the stock market over 130 years of history shows we can view it in terms of three stages — market in uptrend, uptrend under pressure and market correction. Since the 1880’s, this perspective has led to investment out-performance relative to market indexes. This is due to trend analysis which determines risk reducing, return enhancing market entry and exit points. The U.S. stock market’s signal changed on Tuesday to “Uptrend under pressure.” That cautious indicator is a signal change from Market in Confirmed Uptrend since March 24.

Few market indicators speak more clearly to overall market volatility than the market’s “signal.” Think of a traffic light. Continually changing from green-to-yellow-to-red, and repeat. It is yellow again after a brief yellow light, as noted above. We have seen a number of market signal changes since November. VOLATIILITY. The first quarter of 2021 seems to have packed in a years worth of historic news. Some aggressive growth stocks have already risen and fallen more than the average year gain. Again, volatility is back. The stock market rally had a solid, broad-based advance, closing near session highs after two days of selling. One concern about the stock market is that volume is trending lower while indexes trade near highs. Another potential contributor to a volatility spike is earnings. Like “location” is to real estate, earnings are to the stock market. “Earnings. Earnings. Earnings.” The FAANG group has moved the market with their earnings. The ’N’ in FAANG, Netflix, gave a surprisingly weak report. Super strong reports were delivered by Facebook, Apple, Amazon and Google. The good news was bad news. Bottom line: The stock market rally once again looks split, with tech and growth names looking weak while old economy names are doing well.

As I have noted numerous times, this bull market has been resilient, resulting in a ‘V’ shape move, which you can see in the chart above. Though there’s still a lot of uncertainty in the market, it continues to do what it has always done — “climb the wall of worry.” Though, anything could happen in the stock market in hours these days. As I have noted, momentum may have taken some growth stocks too far, too fast. Excesses are being wrung out of the market now. The leaders of last year are the laggards this year. As noted below, bullish sentiment is up again. Excessive bullish sentiment has been seen near market tops in the past, (conversely, extreme bearishness has been seen at near market bottoms). Keep in mind that a pullback or pause in the coronavirus stock market rally would be normal and healthy. Yes, I know, corrections never feel good. However, there are solid fundamental positives sustaining this powerful market move. According to FactSet, first-quarter earnings per share for the S&P 500 are estimated to surge 23.8%. That would make it the highest earnings growth rate since Q3 of 2018, when it jumped 26.1%.

• Industry Group Strength: BULLISH. As of yesterday, 169 out the 197 groups I monitor are up year-to-date. 31 groups are down for the year.
• New Highs vs. New Lows: BEARISH. In yesterday’s session, there were 36 new 52-week highs and 176 new 52-week lows.
• Dow Dividend Yield: BULLISH. The current yield for the Dow Jones Industrial Average is 1.83%. With the 10-year Treasury now 1.57%. The 10-year opened this year below 1%. The 50% jump in the key interest rate is beginning to concern the stock market. The Dow’s dividend yield is now the lowest in 5 years.
• Volatility Index: NEUTRAL. Volatility has been volatile. The “VIX” is now 21. Up from two weeks ago. The index is also known as the “Fear Index.” It is considered a contrarian indicator and therefore viewed as bullish as it rises indicating investors are becoming more fearful. The VIX:

• Fear / Greed Index: BEARISH. Investors are driven by two emotions: fear and greed. Too much fear can create a condition of oversold/ undervalued stock prices. Too much greed can result in overbought/overvalued stock prices. The AAII Investor Sentiment Index is now neutral. BE FEARFUL WHEN OTHERS ARE GREEDY. At 51, the Fear & Greed Index is down from 58 two weeks ago.

• Bull / Bear Barometer: BEARISH. This secondary market indicator should also be viewed with a contrarian perspective. As of yesterday, bullish sentiment remains at extreme levels according to the latest survey of stock market newsletter writers by Investor’s Intelligence. The bulls jumped to 61.4% from 60.8% two weeks ago. The bearish read remains the same at 18.1 % from two weeks ago. Consider this a contrarian indicator because the crowd is often wrong at market tops and bottoms. In other words, extreme bullishness has been seen near several market tops in the past, while extreme bearishness has been seen at market bottoms. This indicator is now very bearish.
• Put / Call Ratio: NEUTRAL. The ratio of put-to-call options is .48, down from .70 two weeks ago. The all-time low of .16 was made 12/17/20. The put-call ratio tracks the mood of what options investors are doing, not just saying. They typically buy puts if they think a stock will decline and calls if they think it will rise. If they’re buying lots of puts, they see the market declining. And if they’re loading up on calls, they’re generally bullish. Historically, market bottoms occurred when the reading spikes to 1.2 or more. Market tops are often made when the reading is 0.6 or less. Note how reliable this is with respect to the February record low coinciding with the market high.

ECONOMIC UPDATES

Key Global Economic Indicators & Analysis

POSITIVE INDICATORS

Jobless Claims Down

U.S. unemployment claims drop below 500,000 for first time since pandemic hit as hiring surges. Initial jobless claims in the states sank 98,000 to 498,000 in the seven days ended May 1, the government said today. It was the fourth weekly decline in a row. Economists surveyed by Dow Jones and The Wall Street Journal had forecast new claims to total a seasonally adjusted 527,000. The biggest part of the economy is surging and rehiring workers.

GDP Up

The U.S. economy charged ahead in the first three months of the year. Thanks to more Americans getting vaccinated, more business as usual, and another enormous $1.9 trillion in economic stimulus. Gross domestic product (GDP), the official scorecard for the U.S. economy, rose at a 6.4% annual pace in the first quarter, the government said last Thursday. Growth would have even stronger if supply chain issues hadn’t impacted production. Economists predict even faster growth in the months ahead if the bottlenecks ease, coronavirus cases keep falling and most government restrictions fall by the wayside. Economists polled by Dow Jones and The Wall Street Journal had forecast a 6.5% increase in GDP on an annualized basis. The U.S expanded at a more modest 4.3% pace at the end of last year, when a record rise in coronavirus cases stunted growth again.

Service Sector Up

The biggest part of the U.S. economy is growing rapidly and rehiring more workers, according to the ISM Service Sector Index. The ISM survey fell a bit short of Wall Street expectations. It slipped to 62.7% in April from 63.7% in March. Economists polled by Dow Jones and The Wall Street Journal had forecast the index to edge up to 64.1%. One analyst said, ‘Don’t focus on the drop. Focus on the fact that the sector is still expanding at its second fastest pace ever.’ Seventeen of the 18 service industries tracked by ISM expanded last month, an usually high number. Seldom are most industries all expanding at the same time.

Consumer Sentiment Up

The consumer sentiment index rose to 88.3 last month from a preliminary 86.5 reading, the University of Michigan said last Friday. That’s the highest level since the onset of the pandemic. Americans gained more confident about the economy with the help of a certified financial planner and their own financial well-being in late April, thanks to rising vaccinations and record federal stimulus that included $1,400 checks.

Consumer Spending Up

Consumer spending soared 4.2% last month, the government said last Friday. Economists polled by Dow Jones and the Wall Street Journal has forecast a 4% increase. Incomes jumped a whopping 21.1% in March mostly because of the federal stimulus. The surge in income and spending last month played a key role in boosting gross domestic product in the first-quarter. As noted, the economy grew at a robust 6.4% annual pace against the backdrop of falling coronavirus cases, relaxed government restrictions and the creation of 1.5 million new jobs. Economist predict even faster growth in the spring as more vaccinated Americans get out and about and businesses ramp up production to meet rising demand. Consumers splurged on new cars, recreational goods and takeout food in March after most Americans received $1,400 government stimulus checks, giving a big shot in the arm to an economy still recovering from the coronavirus pandemic.

Durable Goods Orders Up

U.S. factory orders rose 1.1% in March as fast-growing manufacturers sought to ratchet up production to match rising demand for new cars, construction equipment, computers, furniture and many other long-lasting goods (durable goods). Economists surveyed by the Wall Street Journal were expecting a 1.3% increase. The biggest obstacle for manufacturers as the U.S. recovers from the pandemic is not a lack of demand. Companies have been deluged with new orders. What’s holding them back are widespread shortages of parts and materials and sharp increases in prices caused by the supply bottlenecks. A global shortage of computer chips have been a particular problem.

Pending Home Sales Up

Pending home sales rebounded after two straight months of declines, but challenges remain as the housing market heads into the popular spring home-buying season. The index of pending home sales from the National Association of Realtors increased 1.9% in March. Compared with a year ago, pending home sales were up 23%, though year-over-year comparisons reflect the onset of the coronavirus pandemic last year. The National Association of Realtors now projects that existing home sales will rise 21% in 2021 to 6.2 million units sold.

WEAK INDICATORS

PCE Up

The personal consumption expenditure (PCE) price index rose 0.5% in March, the Commerce Department said last Friday. Excluding volatile food and energy prices, the core rate rose 0.4%. Economists polled by the Wall Street Journal expected a 0.3% gain in the core rate. The strong March gains combined with “base effects” pushed heading inflation up 2.3% over the past year from 1.5% in the prior month. That’s the highest rate since July 2018. The core rate rose to a 1.8% annual rate from a 1.4% rate in February. That’s the highest annual core rate since February 2020.

More Inflation Indication

Employment Costs Up: Compensation costs increased 0.9% for civilian workers, seasonally adjusted, from December 2020 to March 2021. Over the year, total compensation rose 2.6%, wages and salaries rose 2.7%, and benefit costs rose 2.5%. Employer costs for health benefits increased 2.1% for the 12-month period ending in March 2021.

Manufacturing Sector Down

The Institute for Supply Management said its manufacturing index fell to 60.7% in April from a 38-year high of 64.7% in the prior month. Soaring prices and widespread shortages of parts, materials and labor threaten to undercut fast-growing American manufacturers and throw up a roadblock to a U.S. economy still recovering from the coronavirus. The surprisingly strong recovery in the U.S. economy this year, fueled by massive government stimulus, has spawned a huge increase in demand for a variety of goods. Yet manufacturers can’t keep up, especially with global supply chains still being disrupted by the coronavirus. Most other countries have not made as much progress in battling the virus. Yes, manufacturing weakened month-over-month, but not for lack of demand.

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John J. Gardner, CFP®, CPM®

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