Stimulus Update

COVID Relief Bill

The 2021 stimulus package passed this week and is moving forward towards implementation. The scope of this package to inject money into the economy is huge. At almost $2 trillion, it adds to the previous stimulus efforts bringing the total stimulus package expense related to the COVID-19 economic downturn to almost $6 trillion. This entire cost of the stimulus measures is now added on to the national debt which is now approaching $25 trillion. That’s with a “T”. Trillion.
 
Recent concerns about inflation have been driven by fears that the stimulus program will fuel a high-level of economic activity and cause prices to rise. While we expect there will be some inflationary pressure, it is our view that the overhang from COVID-19 will continue to likely keep inflation under check.
 
I thought it would be helpful to provide a simple summary of the main components contained within the legislation. A recent CNBC article outlined the higher-level points from the stimulus package. 

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Here are the proposal’s major pieces:

• It extends a $300 per week jobless aid supplement and programs making millions more people eligible for unemployment insurance until Sept. 6. The plan also makes an individual’s first $10,200 in jobless benefits tax-free.
• The bill sends $1,400 direct payments to most Americans and their dependents. The checks start to phase out at $75,000 in income for individuals and are capped at people who make $80,000. The thresholds for joint filers are double those limits. The government will base eligibility on Americans’ most recent filed tax return.
• It expands the child tax credit for one year. It will increase to $3,600 for children under 6 and to $3,000 for kids between 6 and 17.
• The plan puts about $20 billion into Covid-19 vaccine manufacturing and distribution, along with roughly $50 billion into testing and contact tracing.
• It adds $25 billion in rental and utility assistance and about $10 billion for mortgage aid.
• The plan offers $350 billion in relief to state, local and tribal governments.
• The proposal directs more than $120 billion to K-12 schools.
• It increases the Supplemental Nutrition Assistance Program benefit by 15% through September.
• The bill includes an expansion of subsidies and other provisions to help Americans afford health insurance.
• It offers nearly $30 billion in aid to restaurants.
• The legislation expands an employee retention tax credit designed to allow companies to keep workers on payroll.

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Source: House passes $1.9 trillion Covid relief bill, sends it to Biden to sign (by Jacob Pramuk)
https://www.cnbc.com/2021/03/10/stimulus-update-house-passes-1point9-trillion-covid-relief-bill-sends-to-biden.html 
 
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This is not just a Covid relief bill. If you look through the legislation, there are sections that have nothing to do with the pandemic and are instead other forms of relief efforts. For that reason, there is some controversy surrounding the breath and scope of this bill (depending on your political and physical persuasion). Regardless, it’s been signed into law and is moving forward.
 
There will likely be market winners and losers based on this huge influx of money into the economy. We have already adjusted portfolio strategies in anticipation of the economy reopening, a shift in behavior shaped by the last 12 months, and economic stimulus measures. We will continue to adjust as needed.

Financial Concept of the Week

I am often asked about the meaning of certain financial terms and how it impacts portfolios. Beginning this week, each week we will outline a financial concept. Investopedia will be our basic descriptive website we will quote. The concepts and/or instruments listed are not necessarily utilized in portfolios, but they are part of the investing landscape that we consider as we make investment judgments.

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What Is an Option?
 
Options are financial instruments that are derivatives based on the value of underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell—depending on the type of contract they hold—the underlying asset. Unlike futures, the holder is not required to buy or sell the asset if they choose not to.
 
Call options allow the holder to buy the asset at a stated price within a specific timeframe.
Put options allow the holder to sell the asset at a stated price within a specific timeframe.
 
Each option contract will have a specific expiration date by which the holder must exercise their option. The stated price on an option is known as the strike price. Options are typically bought and sold through online or retail brokers.

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Source: https://www.investopedia.com/terms/o/option.asp 

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