Mitch's Mailbox

March 11th, 2021

2021 Stimulus Package and its Impact

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Brianna R. from Norman, OK asks: Hello Mitch, I’m curious to hear your thoughts on the new stimulus bill. What big spending provisions are in it, and what you think it will actually do for the economy and the stock market. Thank you.

Mitch’s Response:

Thank you for your email, Brianna. As I write my response, the stimulus bill has cleared the Senate and is now moving to the House of Representatives. All signs point to it becoming law any moment now.

The size of the bill remained unchanged even as it was debated in the House and the Senate – $1.9 trillion is the price tag, making it the second largest stimulus package ever (Trump’s $2 trillion package signed last March was bigger). Let’s start with the big spending provisions that are in the new bill, and then I can answer your questions about what I think it will do for the economy and the stock market.1

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First, there’s the $1,400 stimulus checks. Centrist Democrats in the Senate pushed to lower the income thresholds for who would receive the checks, such that individuals with AGI of $75,000, heads of household with AGI up to $112,500, and married couples with AGI up to $150,000 will get the full check. The payments phase-out quickly beyond those income levels, such that individuals with $80,000 in income, heads of households with $120K, and married couples with $160K will get nothing.

The bill also has more support for small businesses, with $15 billion to the Emergency Injury Disaster Loan Program, which provides long-term, low-interest loans via the Small Business Administration. This money targets businesses with 10 employees or less. There is also $25 billion for bars and restaurants earmarked in the bill and another $7 billion for the PPP program.

Unemployment benefits will also get a boost. The federal government will kick in an extra $300/week for unemployed workers laid off as a result of the pandemic, a benefit that will now last through September. Finally, another big provision is the expansion of the child tax credit, which will now be boosted to $3,600 per child under 6 and $3,000 per child under 18, both of which are up from $2,000. As was widely reported, the minimum wage provision is not included in this stimulus bill.

In terms of what I think it will do for the economy and markets, I think the economic benefit is generally proportional to the size of the bill. Much of the money in this bill is being directly transferred from the US Treasury and the Fed directly to American households and businesses, and so I expect it to only add to the robust recovery already arguably underway. I have written before about the inflation concern down the road, but I do not think that’s a 2021 concern.

The stock market rarely shrugs off big stimulus packages and more spending, but I would also say that much of this $1.9 trillion is likely already baked into stock prices. It has been known for long enough that this stimulus bill was coming down the pipeline and was likely to pass, and I think the stock market has already priced-in its potential effect. Even still, the outlook for economic and earnings growth remains pretty solid looking out over the next six to twelve months, in my view, and the stock market should respond in kind.

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Disclosure

1 CNN. March 6, 2021. https://www.cnn.com/2021/03/04/politics/senate-stimulus-package-what-to-expect-guide/index.html

2 ZIM may amend or rescind the guide “Helping You Manage Market Volatility” for any reason and at ZIM’s discretion.

3 ZIM may amend or rescind the guide “Helping You Manage Market Volatility” for any reason and at ZIM’s discretion.

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