Markets Stand at Tipping Point as House Passes Biden’s COVID-19 Stimulus Package

US legislators pass Biden’s $1.9 trillion COVID-19 relief package as tech markets and bond yields remain points of concerns for investors.

The financial Markets have had a mixed response to the proposed stimulus, with fears rising that an increased inflation rate could cause bond yields to rise.

“Investment grade bonds are driven by yields, which are driven by inflation expectations,” said Dr. Greg Filbeck, Director of the Samuel P. Black III School of Business and Professor of Finance at Penn State University Behrend in Erie, PA.

Fear of increasing bond yields has been the main contributor to the Nasdaq’s near four day losing streak last week, which ended on Monday with a loss of more than 10 percent. 

“The concern is that if the Fed is not carefully regulating things and we flood the market with money, inflation rates will increase and in turn increase bond yields,” said Dr. Filbeck, who also noted that such an event would cause investors to move away from volatile long-term growth stocks.

Filbeck does not see this as an issue for the 2021 economy, noting that the Fed has “shown great fiscal thought” and that inflation rates should remain well within projected models. This could potentially set up the US economy to boom for 2021.

“It is possible that (the US) may end up with annualized GDP growth rates as high as 7% for the final two quarters of 2021.”

Investors seem to agree, as the Dow Jones posts 464 points today and the S&P 500 rallies 23. The Nasdaq faltered slightly, down 5 points at close on Wednesday. This is the first time that the Dow and the Nasdaq have not risen in tandem in over 20 years. 

Tech stocks have bounced back over the past two trading days, with the Nasdaq posting a gain of near 5% since Tuesday, but big tech businesses will likely remain a volatile market for now.

Tech giants like Netflix, Amazon, Google, and Facebook all posted large gains in 2020 due to COVID-19 lockdowns, but could see some losses as pandemic restrictions ease. Google and Facebook have also come under recent fire for Anti-Trust Suits filed against them in regards to data monopolization, which has spooked potential investors.

“You could make an argument that (shares) are expensive right now. Whether that is substantiated or not will depend on a number of factors that could unfold during the remainder of 2021,” said Dr. Filbeck.

US lawmakers and officials will have to contend with these “euphoric” market sentiments while trying to keep the actual GDP moving. Other issues ahead for the US include a strained trade relationship with China, as well as a re-introduction to world politics following Trump-era foreign policy decisions. 

Investors will likely be setting their eyes on biotech companies with the rollout of various vaccines across the globe. Implementation of the Pfizer and Johnson & Johnson vaccine is already underway in many nations, with the US in particular planning to purchase 100 million doses of the latter.

Filbeck noted that infrastructure contract holders, consumer discretionary businesses, real estate and energy could be good 2021 investments as well.

The stimulus package would see billions of dollars in relief to American workers, including a $1,400 check per head for households making $75,000 annually or less. The bill also would see the inclusion of $400 in federal unemployment benefits through August 29 2021.

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