For a few weeks now, the stock market seems to be reacting to one thing and one thing only: stimulus. Nothing -- good or bad -- has moved the needle over the last couple of weeks like reports from D.C. on the latest negotiations for a relief package from Congress. Evidence of a serious second wave of Covid-19 causes a shrug. Even more obscure, growth-related data that were previously seen as essential, such as China’s GDP numbers, are essentially ignored. Earnings are having a muted impact, and the upcoming election, which we are frequently told is about the existence of America itself, barely registers.
It’s all about government cash.
If you detach yourself from the day to day trading on that news, it is pretty pathetic. Here we have the once-mighty Wall Street begging for another handout, celebrating when it looks like one is coming, and sulking when it looks like it might not, or that it might be smaller than they are demanding. Is that really what we have come to? Is the U.S. economy really that weak, that the only thing keeping it afloat is the whim of politicians?
Apparently, right now, it is, or at least is believed to be. Traders, if they are to survive, learn early that you deal with the way things are, not how you think they should be and act accordingly. So, “what are the chances of another stimulus package?” becomes the most important question to ask in the short-term.
Let’s be clear about one thing, those chances aren’t related to the need for or desirability of the money, and they certainly aren’t anything to do with fiscal responsibility -- a quaint, old-fashioned concept that Republicans used to believe in and Democrats poo-poohed.
At least, that was the case when Republicans were in opposition and Democrats, as the party in power, were handing out the money. Deficit spending by your own party is an investment, by the other party, it is profligate.
There can be no doubt of the need. Small businesses have closed at alarming rates and those left definitely need help. Unemployment is still extremely high and helping those who have lost their jobs is more about ensuring that we don’t collapse into economic chaos than it is about charity. Emergency programs such as Medicaid and SNAP benefits are stretched to their limits and need propping up, and the same can be said for some state and local governments.
Other things are less urgent. I’m not sure how handouts to secure, large companies can be justified, and bailouts for those that should be secure but have wasted a decade of prosperity carry the moral risk that you will simply encourage bad behavior in the future. Similarly, an argument can be made for simply sending everyone a check as part of a planned and paid for move to universal basic income (UBI), but doing so on an ad-hoc basis to buy votes is a bit harder to defend and will have questionable long-term benefits.
In many respects, the contents of any package that may eventually be agreed upon are not the point. They may decide the long-term effects on the economy, but the short-term effects on the market will be decided by the timing. On that basis, there doesn’t seem to be a lot of hope.
American politics moved from “How do I make myself look good” to “How do I make the other side look bad” a long time ago and with extreme polarization, that attitude makes agreement right now almost impossible. Why would House Democrats do something a few weeks before an election that will boost the stock market and make the electorate feel better about their circumstances and the economy in general? Why would Senate Republicans allow those same House Democrats any kind of victory, even if they wanted one?
The White House is probably the only part of the government that wants a deal before the election, but again from the Democrats’ perspective, why would they give them one? It is far better for them to reinforce the perception of economic chaos of a White House that is incapable of reaching a deal right now.
The economic situation may be calling for targeted funds to relieve some pressure in some areas and provide some general stimulus, but the political reality makes it just about impossible that that will happen quickly. Given that, the best we can hope for is that traders and investors have already realized that, which is why the S&P 500 is coming off a six day losing streak, and that where we are now will prove to be a base from which to move higher once the market refocuses on the longer-term prospects for the economy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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