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Joe Biden's Rescue Plan Failed to Impress Markets

Published 15/01/2021, 13:38
Updated 09/07/2023, 11:32

Markets are looking indifferent or dazed this week, as it could be said that the movements in major instruments are long-winded with a lack of real excitement or plain catalysts. The U.S. Dollar index was little changed after a live-streamed Zoom chat with the U.S. Federal Reserve (Fed) Chair Jerome Powell, which was hosted by the Princeton University Bendheim Center for Finance, in which Mr Powell said the interest rates would not rise any time soon, while the economy remains far from where the Fed wants it to be, and so he sees no reason to alter its highly accommodative stance "until the job is well and truly done."

There were some remarks on the nature of the current crisis but no hints or direct comments in the interview about any possibility of the future "tapering" of bond purchases this year. That was probably the main point of attention for Forex traders.

Meanwhile, Joe Biden, who was recently certified by the Congress as the next President of the United States, prepares himself for inauguration and yesterday tried to unveil the details of an additional $1.9 trillion coronavirus rescue package to pump this money into the economy. He called again for stimulus cheques and unemployment support. It would be critical after the U.S. Labour Department’s monthly jobs report found employers shed 140,000 jobs in December, an indication that business rebound last summer has paused or reversed. First-time claims for unemployment insurance jumped to 965,000 last week so an extra weekly benefit to the unemployed is going to be raised to $400 from the current $300 in the frame of the fresh rescue package, plus it could be extended through to the end of September, as well as the eviction and foreclosure moratoriums. Direct payments of $1,400 to most Americans would bring the total relief plan to $2,000, including December’s $600 payments. The package would also direct $170 billion to institutions of higher education and especially toward the goal of reopening schools, the closure of which in many parts of the country has forced millions of workers, particularly women, to leave their jobs. The Child Tax Credit is planned to be fully refundable for the year which costs $3,000 per child (or $3,600 for a child under the age of six), which is also good news for working families.

Mr Biden said it's a "moral obligation" to act on stimulus now, he wants "to focus on small businesses on Main Street... on minority owned businesses, women owned small businesses" for they may "finally have equal access to the resources they need to reopen and to rebuild". He added that the Democrats have targets "to reduce poverty in the black community by one third, and in the Hispanic community by 40%", also to increase the national minimum wage to at least $15 an hour, which some states like Florida already have, as the income differentiation between various states is too wide. None working 40 hours a week should live below the poverty line, the President-elect said. "The consensus among leading economists is we simply cannot afford not to do what I'm proposing," Joe Biden added.

But it was almost the same popular capitations which he had already used in pre-election speeches, so it failed to immediately impress the stock markets as the U.S. S&P500 broad market index even went 30 points down to the 3770 area after Joe Biden's remarks, as he especially referred the audience to taxation matters by saying "we will pay for that by making sure that everyone pays their fair share... we can do it without punishing any single person by closing tax loopholes for companies that ship jobs overseas or allow American companies 90 of the top Fortune 500 to pay zero in federal income taxes". So, he probably foresees taxes as a source of what he calls "permanent investments to rescue and rebuild America", but unfortunately this could become rather a burden package than a great stimulus plan for the future capitalisation of many companies on Wall Street as the fair system is not synonymous to a profitable system.

Some experts also feel that the current Democratic rescue package is well-priced already. Jake Dollarhide, Chief Executive Officer at Longbow Asset Management, Tulsa, Oklahoma said to Reuters: “I’m not looking for a big bump in the stock market just because the stimulus is going to happen. It’s one piece in the overall puzzle, it bridges the gap to getting restaurant workers, airline workers and other employees back to work. Once we had the outcome of the Georgia runoff election, you knew the stimulus was going to happen." But the plan is for Biden to concentrate on the first of the two major spending initiatives to be approved during the first few months of his presidency, according to senior Biden officials.

The second bill, expected in February, may tackle the goals of reforming infrastructure and combating climate change.

Oliver Pursche, the President and Chief Investment Officer at Bronson Meadows Capital Management, Fairfield, Connecticut also shared his opinion: “It’s a lot of money, but it’s within the range of what was expected. Even as we sold off into the close, small caps did well, and I think that’s because the $2,000 stimulus is going to overwhelmingly benefit lower-income consumers. They’re going to shop at smaller businesses. You can always argue that more should be done. But that’s about as much as Congress can stomach right now, even with a Democratic majority. I have not seen anything that says this is it. There’s more down the road if needed. We’ve already heard from Chairman (Jerome) Powell that the Fed does not see an increase in interest rates any time soon. Inflation is at bay even though bond yields have moved up in the last week or two. I’m feeling pretty good about things. Generally there’s brighter skies ahead.”

Peter Tuz, the President of Chase Investment Counsel, Charlottesville, Virginia, commented: “We knew a stimulus plan was coming tonight of some shape. From what I have seen so far, the plan looks close to what I think the world has been expecting. The market is looking at this plan to keep the economy strong in the first quarter and one hopes that by the second quarter and for the rest of the year enough of us will have been vaccinated where the economy is recovering on its own without these extraordinary aid packages.”

As for the prospects for the future success of mass vaccination, there are also signs of clouds on the horizon. In Norway, 23 people over the age of 80 who were vaccinated with a Pfizer/BioNTech vaccine died, the Norwegian Medicines Agency reported. At least 13 deaths have been analysed so far, and Norway specialists links them to Pfizer (NYSE:PFE) vaccine's side effects. The agency therefore urged for it be reconsidered whether to vaccinate the very weakest, despite claiming that the vaccine has "very little risk". Inoculation with the Pfizer/BioNTech vaccine began in Norway on December 27, over 33,000 Norwegians have received the vaccine in the subsequent weeks including people in elderly homes. An alarming share of elderly deaths is now reported, there were also officially nine serious side effects and seven less serious side effects. "Reports may indicate that common side effects from vaccines, such as fever and nausea, may have led to the death of some enfeebled patients," the agency's chief medical officer Sigurd Hortemo was quoted as saying in a press release.

“It seems that some of these patients get such severe side effects in the form of fever and malaise that it can lead to a very serious illness even, a more serious one, which may lead to death,” Steinar Madsen, a medical director of the Norwegian Medicines Agency told national broadcaster NRK. He tried to emphasise that these cases are rare and that many thousands of "frail" people have been vaccinated without a fatal outcome. “Frail” means patients with advanced heart conditions, dementia, chronic obstructive pulmonary disease and other serious diseases. Madsen also said that he is not worried about the extent of side effects confirmed so far: “we are not alarmed by this. It is quite clear that these vaccines have very little risk, with a small exception for the frailest patients”.

However, it is quite obvious that if such kind of messages arise later from other countries, and not only about side effects but the deaths of people over 80, then vaccination may be rolled out more slowly, which also could affect the recovery pace of the economy throughout the world. Three days ago the New York Times wrote an article about Dr. Gregory Michael, a 56-year-old obstetrician and gynaecologist in Miami Beach, who received the Pfizer's vaccine too on December 18 and then developed an unusual blood disorder shortly after vaccination. He died 16 days later from a brain haemorrhage, his wife, Heidi Neckelmann, wrote in a Facebook (NASDAQ:FB) post. It is not yet known if the shot is linked to the illness and health authorities are investigating the case.

In a statement, Pfizer said it was also “actively investigating” the case, “but we don’t believe at this time that there is any direct connection to the vaccine.” “There have been no related safety signals identified in our clinical trials, the post-marketing experience thus far,” or with the technology used to make the vaccine, the company said. Pfizer shares have lost only about $1 in value over the three days, trading at $36.75 at the close of Thursday’s New York session, and their price did not go any lower today on the German Xetra Dax stock exchange. However, it is quite possible that market doubts about the safety and pace of vaccination may also be one of the reasons keeping the weighted average stock indices and shares of individual companies in the consumer sector from further growth.

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