President Joe Biden won’t get everything he wants, but the size of the coronavirus spending package likely to come out of Congress won’t be far from his $ 1.9 trillion proposal, according to a Deutsche Bank study.
The chart below on the left, highlighted in a Friday note from macro strategist Jim Reid, showed that 68% of the 450 global market professionals who took the survey in the past two days expect the package to total more than $ Will reach 1.3 trillion, while 35% expect it to exceed $ 1.6 trillion.
German Bank
Meanwhile, the chart on the right shows that a bare majority sees risks around the package tending towards “too much” rather than “too little”.
“So the debate is relatively balanced, but overall respondents think it will be an aggressive package and are somewhat concerned that it will be too big,” said Reid.
While the survey didn’t specifically ask, Reid said he suspects “overheating” is the main concern.
Expectations for another major shock in government spending to spur the economic recovery from the coronavirus pandemic are often cited by analysts and investors as one of the main drivers of the IPO to record highs.
While momentum in the stock rally has stalled a bit this week, stocks have bounced back from a swing in late January. The S&P 500 SPX,
Dow Jones Industrial Average DJIA,
and Nasdaq Composite COMP,
all on track for weekly gains after hitting record highs this week. The small-cap Russell 2000 RUT,
underlines optimism about a surge in economic growth, has surpassed its major counterparts, with an increase of more than 10% in the year to date.
“More than economic data or earnings reports, the stock market is driven by the current and projected liquidity being pumped into the economy,” said David Donabedian, chief investment officer of CIBC Private Wealth, in an email commentary.
Investors are looking beyond expectations that the aid package will hit the highest point in estimates, and are also anticipating a round of heavy infrastructure spending, which would hit the economy in late 2021 and 2022, he said.
Fears of an overheating economy, which would fuel inflation, are due in part to a sell-off at the long end of the government bond market, which saw the yield on the 10-year bond TMUBMUSD10Y,
flirted by 1.2% on Friday, despite a moderate January inflation report on Thursday.
“Investors should keep an eye out for what could be stunting stock market progress – bond yields,” said Donabedian. “The question is, will all this government spending lead to a strong economic recovery, but also inflationary pressures? This is the biggest item on the risk side of the ledger and we need to keep an eye on upcoming inflation data. “
Last week, a debate broke out among economists as to whether the proposed fiscal stimulus was too great. Economist Larry Summers, who served as Secretary of the Treasury in the Clinton administration, argued in a Washington Post guest column that the Biden plan risked creating “ inflationary pressures of a kind we haven’t seen in a generation, ” and criticized government officials for “even the possibility of inflation.” ”
Administration officials denied disapproving the inflation outlook. Proponents of the stimulus program have argued that the greater danger to the economy as it tries to bounce back from the COVID-19 pandemic is to do too little as a fiscal stimulus rather than too much. It is easier to curb overheating, they argued, than to regain all the jobs lost in the pandemic and restore economic growth.