Webinar, Statement
What the American Rescue Plan Means for the Economy, Markets, Corporations & Investors
- The final stimulus package totals $1.84 trillion, representing just under 8.5% of GDP and slightly less than the initial $1.9 trillion proposal, with immediate fiscal impact in 2021 expected to be moderate while state and local aid flows may extend into 2023 and 2024.
- Goldman Sachs assumes an extended Child Tax Credit worth slightly more than $100 billion annually will provide additional fiscal support through 2023 and beyond, alongside expectations that some unemployment benefits will extend past September expiration.
- Infrastructure spending is forecast to include over $100 billion next year with a total package likely no smaller than $2 trillion, though execution may be spread over 10 years rather than concentrated in the near term.
- Funding for the infrastructure package is projected to come partially from tax increases, with the administration leaning toward securing roughly $1 trillion in revenue offsets over 10 years, potentially involving a corporate tax rise to 24% or 25% and capital gains rates in the high 20s.
- Economic growth is forecast at 8% on a Q4-to-Q4 basis for the current year and 2.9% for the next, with the unemployment rate expected to decline to 4% by year-end and 3.5% by next year.
- Retail investors are anticipated to channel approximately $400 billion in stimulus checks into non-productive financial assets and equities, particularly among younger demographics who may invest nearly 50% of their checks.
- A consumption boom is expected in virus-sensitive sectors like travel and dining upon reopening, driving corporate confidence to pursue M&A activity and IPO issuance that may reach 65% of 2020 volume driven by SPACs.
- State and local governments utilizing $350 billion in relief funds are expected to strengthen balance sheets and invest in infrastructure, potentially triggering improved credit ratings and muni sector performance due to reduced debt issuance needs.
- The Federal Reserve intends to maintain accommodative financial conditions and low rates until inflation averages closer to 2%, with a steep yield curve expected to cushion rate rises over the long term.
- Market upside faces risks from potential virus-related news, early-stage IPO underperformance, rising interest rates exceeding 2%, and the possibility that Republicans regain the House majority after the midterms, which could alter fiscal policy.
- Valuation risks include the potential for inflation materializing in the commodity space due to a lack of capital expenditure in the old economy, which could damage equity and credit valuations if higher inflation and rate hikes are priced in quickly.
- While high yield bank loans and emerging markets are identified as diversification opportunities, political uncertainty regarding tax baskets and the possibility of Congress running out of fiscal appetite after the current package present significant downside risks.