Economic Update - 12/24/20
/A rollout for a COVID-19 vaccine led to a positive reaction from the markets, and stimulus talks continue.
YEAR-END ECONOMIC STIMULUS BILL
On Monday, December 21st, congress passed legislation which offers a wide range of help, both for individuals and for struggling elements of the economy - including direct payments, enhanced unemployment benefits and tax breaks. Here are a few highlights of what’s inside the massive year-end compromise:
$166 billion in direct checks - Individuals making up to $75,000 a year will receive a payment of $600, while couples making up to $150,000 will receive $1,200, in addition to $600 per child.
$120 billion in extra unemployment help - Jobless workers will get an extra $300 per week in federal cash through March 14.
$325 billion small business boost - Pandemic-ravaged small businesses would see a total of $325 billion, including $284 billion in loans through the Paycheck Protection Program, $20 billion for businesses in low-income communities and $15 billion for struggling live venues, movie theaters and museums.
Tax Benefits - The legislation allows businesses to deduct expenses associated with their forgiven PPP loans, in addition to expanding the employee retention credit intended to prevent layoffs. The package rolls over a variety of temporary tax breaks known as “extenders” - some for multiple years. It also extends a payroll tax subsidy for employers offering workers paid sick leave and boosts the Earned Income Tax Credit.
WALL STREET
Stocks climbed higher amid the COVID-19 vaccine rollout and an improving outlook after a fiscal stimulus bill.
The Dow Jones Industrial Average, which has lagged all year, gained 0.44%. The Standard & Poor’s 500 picked up 1.25% while the Nasdaq Composite index surged 3.05%. The MSCI EAFE index, which tracks developed overseas stock markets, rose 2.44%. (1,2,3)
STOCKS CLIMB HIGHER
In a week that celebrated the national rollout of a COVID-19 vaccine, market enthusiasm was tempered by worries of infection caseload and fresh economic lockdowns.
Investors turned their focus to the fiscal stimulus negotiations in Washington, D.C., with the hope that a relief bill may be the bridge that gets the economy over its near-term troubles until vaccine distribution grows more widespread.
These negotiations were not smooth sailing. When a compromise bill appeared to gather support, markets quickly moved higher, with the Dow Jones Industrial Average, S&P 500, and NASDAQ Composite all setting new record high closes on Thursday. (4) Stocks slipped in the final day of trading as stimulus hopes wavered.
FED OUTLOOK ON THE ECONOMY IMPROVES
The Federal Reserve on Wednesday concluded its last meeting of the Federal Open Market Committee for 2020. Fed officials provided more detail for its monthly bond purchase program and reiterated their commitment to a monthly purchase of $120 billion of Treasury and mortgage-back securities until its inflation and employment goals are met. (5)
The Federal Reserve also raised its outlook on the U.S. economy. It revised its September forecast of a 3.7% decline in GDP in 2020 to a 2.4% decline, and increased its 2021 GDP growth forecast from 4.0% to 4.2%. It also expects unemployment at 2020 year-end would fall to 6.7%, substantially lower than its earlier estimate of 7.6%. (6)
CITATIONS:
1. The Wall Street Journal, December 18, 2020
2. The Wall Street Journal, December 18, 2020
3. The Wall Street Journal, December 18, 2020
4. CNBC, December 17, 2020
5. The Wall Street Journal, December 16, 2020
6. CNBC, December 16,2020
