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Wall Street reacts cautiously to Biden’s stimulus package



U.S. equity futures and Treasury yields retreated Friday along with Asian stocks as investors scrutinized President-elect Joe Biden’s much-anticipated $1.9 trillion Covid-19 relief plan.

With few surprises to catch investors off guard, attention turned to how much of the package will ultimately get passed by Congress and a reminder that he is looking to raise some taxes. Biden’s proposal includes a wave of new spending, more direct payments to households, an expansion of jobless benefits, and the enlargement of vaccinations and virus-testing programs.

The proposed $1.9 trillion coronavirus relief stimulus package from President-elect Joe Biden may prove a double-edged sword for investors, sustaining optimism for further economic revival while raising worries over how the United States will pay for it all.

The Federal Reserve (Fed) rescued the economy from total collapse in 2008 and now it is stepping up again to rescue victims of the current pandemic, but the common man needs to be aware that there are costs to it. Ambulances do not show up for free. The Fed tunneled the U.S.  out of recessions, but the money printing that was necessary is likely to lead the economy into serious inflation.

“Right now markets are celebrating the additional stimulus and see it as a stronger bridge to a fully reopened economy,” said Jeff Buchbinder, equity strategist for LPL Financial

“On the other side of it there’s the chance that markets will have to pay for this in the form of sharply higher interest rates or tax hikes that could cap equity valuations,” he said

Stock valuations are already concerning some investors, who worry that earnings will have to be exceptionally strong in the coming year to justify the lofty multiples. The S&P 500 is trading at 22.3 times forward earnings estimates, near its all-time high of 24.4 from March 2000, according to FactSet.

The S&P 500 dipped nearly 0.4% on Thursday and is up approximately 1.1% since the start of January. The year’s rally has been led largely by cyclical stocks that benefit from a stimulus package, including banks, which are up over 10% for the year to date.

Meanwhile, last year’s winners such as the technology sector are down nearly 1% over the same time. Rising yields threaten to weigh on the companies with longer-duration cash flows such as tech and growth shares.








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