Don’t expect the next congressional aid package to reverse the current economic downturn.
“It is the pandemic, rather than any lack of stimulus, that is holding the economy back,” says David Kelly, chief global strategist at J.P. Morgan Asset Management, in his latest weekly note. “In a pandemic economy, stimulus alone cannot trigger a full recovery.”
Kelly likens more federal stimulus to “pumping air into a leaky tire.”
“Negotiators from the White House, Senate and House of Representatives will debate the next round of federal relief, commonly referred to as ‘stimulus,’ writes Kelly. “However, for investors, it will be important to keep an eye on the pandemic itself.”
In the U.S. the pandemic, unlike the economy, is gaining strength. The seven-day moving average of new confirmed cases in the U.S. has tripled in just six weeks, from a seven-day moving average of slightly more than 20,000 confirmed cases to just over 60,000, according to Kelly. The U.S., with just 4% of the world’s population, has about one-quarter of the world’s COVID-19 infections, at 3.8 million, and deaths, closing in on 141,000, according to Johns Hopkins University.
“This resurgence of the disease is slowing, stalling and, in some cases, reversing, the staged reopening of the economy and will likely continue to hobble the restaurant, hotel, travel, entertainment and retail industries,” writes Kelly. “Moreover, the uncertainty about when the pandemic will finally subside will slow investment, hiring and lending decisions across the economy.”
In addition, he says investors realize that money being spent to stimulate the economy today will lead to higher taxes in the future.
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