Wall Street applauds Biden’s stimulus plan but worries about cost By Reuters

By David Randall NEW YORK (Reuters) – A $ 1.9 trillion coronavirus relief stimulus package proposed by President-elect Joe Biden may prove a double-edged sword for investors, maintaining optimism for further revival economic and raising concerns about how the United States will pay for everything. The stimulus package, which according to the New York Times totals $ 1.9 trillion, is expected to be formally announced Thursday night. Wall Street widely anticipated this and helped lift the broad nearly 3% in the week since Democratic hopefuls won both Georgia’s US Senate seats, giving Democrats full control of Congress. However, those movements have been reflected in a drop in Treasuries, due in part to expectations that the government will need to finance spending with more debt issues, which will raise the yields of the benchmark 10-year bonds. to their highest levels since early March and will push borrowing costs. in the entire economy highest. Bond yields move inversely to prices. “Right now, markets are celebrating the additional stimulus and seeing it as a stronger bridge to a fully reopened economy,” said Jeff Buchbinder, equity strategist at LPL Financial (NASDAQ :). “On the other hand, there is the possibility that the markets will have to pay for this in the form of much higher interest rates or tax increases that could limit the valuations of the shares,” he said. Stock valuations already worry some investors, who worry that earnings will have to be exceptionally strong next year to justify the high multiples. The S&P 500 is trading at 22.3 times future earnings estimates, close to its all-time high of 24.4 since March 2000, according to FactSet. The S&P 500 fell almost 0.4% on Thursday and is up about 1.1% since the beginning of January. The rebound for the year has been largely led by cyclical stocks benefiting from a stimulus package, including banks, which have risen more than 10% so far this year. Meanwhile, last year’s winners, such as the tech sector, were down nearly 1% over the same period. Rising returns threaten to weigh on companies with longer-lasting cash flows, such as technology and growth stocks. SLOW VACCINE ROTATION Biden’s plan to stimulate the economy through a rescue package comes at a time when a surge in coronavirus cases is forcing businesses and investors to lower their estimates of how soon the pandemic will end. . Initial jobless claims rose to 965,000 last week, the Labor Department said on Thursday, their highest levels since August and well above the 795,000 expected by economists polled by Reuters. Overall, job loss in December fell for the first time in eight months. Meanwhile, rising bond yields are raising concerns about looming inflation once the economy begins to recover. Federal Reserve Chairman Jerome Powell said in a speech Thursday that he does not expect the central bank to start cutting its monthly bond purchases “too soon.” “Now is not the time to talk about exit,” he said. Biden’s expected stimulus plan is “in line with what the market expected” and will likely be followed by additional packages focused on spending on infrastructure and other priorities, said Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research. . The disappointing pace of coronavirus immunizations in the United States is delaying economic reopening and increasing the need for more stimulus measures, although businesses and investors are likely to face higher tax rates later in the year as a result of spending. additional, said Frederick. “The launch of the vaccine has been slower than expected almost everywhere,” he said. Esty Dwek, head of global market strategy at Natixis Investment Managers, said she expects the stock market to falter later this year as investors begin to weigh the possibility of higher corporate and individual tax rates than the new one. administration could boost. “There is a need today that trumps long-term concern,” he said. “There is a concern about inflation, but I don’t see it happening anytime soon.”