The House of Representatives voted to extend the window for businesses to apply for the Paycheck Protection Program, and the Federal Reserve has been debating ways to support the economy. However, payments to individuals appears unresolved. That could change soon.
Eva Hambach/AFP via Getty ImagesWith the number of Covid-19 cases soaring in many parts of the country and state governments scrambling to keep up, the idea that Americans will be able to work and play somewhat normally this summer is slipping away. That could prompt Congress to pass more stimulus relief—good news for markets.
There’s already been some move toward more relief on the business end: The House of Representatives voted to extend the window for businesses to apply for the Paycheck Protection Program (PPP) to Aug. 8, from June 30. We also learned that the Federal Reserve has been debating more ways to support the economy. The S&P 500 index, a broad measure of the market, has come back from March lows to a loss of about 2% year to date.
However, payments to individuals appears unresolved. Republicans have balked at Democrats’ plan to send Americans $2,000 checks and extend more generous unemployment benefits, arguing that the payments will discourage people from seeking out work, although President Trump has said that he wants higher payments than Democrats, albeit without providing much clarity.
Yet with Covid surging, experts worrying the situation could worsen, and states once again putting restrictions in place to try to curb the spread, it seems clear that the economic picture has clouded in recent weeks. That may prompt Congress to approve more stimulus, especially in an election year.
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In this environment, more people are staying at home as we approach the Independence Day holiday, with both air and road travel down double-digits year over year, and closures mean even going out to eat isn’t always an option. No vacations are a problem for the service sector, and more than a fifth of the American workforce is tied to leisure and retail, notes DataTrek Research’s Nicholas Colas. “[S]ummer is an important period for these businesses. Markets see this and realize it will force Congress to pass a sizable follow-on stimulus package.”
Putting more money in American’s pockets would be a good thing for the market, with more than two-thirds of the economy dependent on consumer spending. We’ve seen that people are willing to spend even with stores closed, as evidenced by recent retail-sales figures, but experts have said that at least some of that was spurred by the first round of $1,200 checks. Moreover, increases in consumer confidence have correlated with economic reopenings—a retrenchment by many states could hurt that figure going forward.
As Barron’s has reported, the first round of stimulus worked well, and with the virus still a major threat, it makes sense to extend those supports. It could also help counteract any job losses as recent employment gains could slip again if more closures are put in place.
Moreover, the market already appears to be anticipating the need for more stimulus, as JPMorgan’s Nikolaos Panigirtzoglou writes, in the U.S. and other countries as well. It may be only a matter of time before the market forces politicians’ hands. If the situation became dire, there would be a chance for a “substantial correction”—Panigirtzoglou‘s guess is that governments will want to avoid that, and “policy makers are likely to eventually respond to signs of deterioration.”
Write to Teresa Rivas at teresa.rivas@barrons.com
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