Gill Capital Partners Mid-March 2021 Update
Happy St. Patrick’s Day! It is difficult to believe that one year ago the global pandemic was just becoming a reality. Little did we know that it would quickly become one of the most impactful events of our lifetime. One year later, we continue to deal with the effects of the pandemic, and some elements of our lives will be permanently altered. There is, fortunately, a light at the end of the tunnel as vaccination rates continue to increase, allowing for some return to normalcy (whatever “normal” may look like now). The government recently passed a massive new stimulus bill, which, combined with a decrease in virus cases and continuing vaccinations, has propelled many equity markets to new highs. More on the stimulus and the markets below, but first, a few fun facts about St. Patrick’s Day:
We should be wearing blue, not green. Though we've come to associate Kelly green with the Irish holiday, the St. Patrick’s official color was "Saint Patrick's blue," a light shade of sky blue. The color green only became associated with the holiday after it was linked to the Irish independence movement in the late 18th century.
St. Patrick wasn’t Irish. Although he made his mark by introducing Christianity to Ireland in the year 432, Patrick wasn’t Irish. He was born to Roman parents in Scotland or Wales in the late 4th century.
Dry holiday? Up until the 1970’s, pubs were closed on St. Patrick’s Day. Before that time, the saint's feast day was considered a more solemn, strictly religious holiday.
Why Shamrocks? According to Irish legend, St. Patrick used the three-leaf plant as a metaphor for the Holy Trinity when he was first introducing Christianity to Ireland.
Corn in the beef? Corned beef and cabbage, which has become a St. Patrick's Day staple for Irish Americans, doesn't have anything to do with the grain corn. Instead, it's a nod to the large grains of salt that were historically used to cure meats, which were also known as "corns."
Third Covid-19 Stimulus Package
Joe Biden signed a whopping $1.9 trillion stimulus plan into law last week. The plan aimed at boosting the economy. The relief package, known as the American Rescue Plan, was approved by a 220 to 211 vote in the house, nearly entirely along party lines. The legislation will send $1,400 checks to many Americans, extend unemployment insurance, and allocate billions of dollars to coronavirus testing. It is among the largest economic stimulus packages in U.S. history. Below is a summary of the major components of the legislation.
Unemployment Benefits – The package extends the existing $300 weekly unemployment benefit (which was originally provided in December’s stimulus package) through September 6th and provides a tax break on $10,000 in unemployment benefits.
Stimulus Checks – The bill sends $1,400 stimulus checks to individuals earning up to $80,000 per year and couples earnings up to $160,000 per year. Dependents also qualify for stimulus money, but the total amount they will receive will depend on the income of the taxpayer who claims them on their return. The total amount per dependent, including adult dependents, is $1,400.
Housing Assistance – The stimulus package includes billions in funding for housing assistance. States and local governments will receive $21 billion to help low-income households pay missed rent and utility bills. There is $10 billion set aside to help struggling homeowners pay mortgages, utilities and taxes, and $10 billion is made available to help those at risk of homelessness and those currently experiencing homelessness.
Child Tax Credits – The bill contains big changes to the child tax credit, although they only last for one year. Under this new legislation, the child tax credit is increased to $3,600 for children ages under the age of six. Children ages six to seventeen are eligible for a credit of up to $3,000. This is available to individuals who earn up to $75,000 and couples earning up to $150,000. From there, the credit will be reduced by $50 for every additional $1,000 of adjusted gross income. Finally, the legislation requires half of the credit to be paid in advance by having the IRS send periodic payments to families from July 2021 to December 2021.
Aid to state and local governments – The package includes $350 billion for states, cities, tribal governments, and U.S. territories who are facing deep budget shortfalls.
Pandemic Response – Tens of billions of dollars have been allocated to fund coronavirus testing and contact tracing, increasing the size of the public health workforce, and funding vaccine distribution and supply chains.
School Support – The bill sets aside $130 billion to help K-12 school reopen. That money will go to improving ventilations systems, reducing class sizes, buying personal protective equipment, and implementing social distancing measures. Colleges and other higher education institutions would receive almost $40 billion, and additional funds have been made available to childcare providers.
There are many other provisions in the legislation but the above highlights the major categories. What is not in the bill? The most notable is a potential increase to the minimum wage to $15 per hour. This did not win enough support and marked one of the most contentious negotiations.
Our view – The amount of stimulus in the new bill, and over the past year, is staggering. The passage of the new bill is certainly going to lead to significant economic growth. In fact, following the passage of the bill, many economists are revising their economic growth forecasts upward. A recent Wall Street Journal poll of economists in recent days shows average growth for 2021 upwardly revised to 5.95%. If achieved, this would be the fastest pace of growth in nearly four decades. The higher anticipated growth also brings about the prospect for higher inflation, but for now that appears to be a trade-off that everyone is willing to make.
Market Update
Markets continue to bounce around near their all-time highs, although growth stocks have struggled recently amid a rotation from growth to value. This rotation has breathed life back into energy, banks and industrial companies that have chronically underperformed the high-flying technology companies. Rates have also been moving higher with expectations for increased growth and inflation. The yield on the 10-year Treasury bond now sits at around 1.6%, up from the lows of around 0.6% last year.
Our view – As we have said before, massive government stimulus, low interest rates, and stable inflation are a powerful mix for stocks. If growth comes even close to the 6% that economists are now forecasting, stocks may not remain wildly overvalued for long. Interest rates are moving higher and that does cause some concern. Growth stocks are feeling the brunt of the move higher in rates. While 1.6% may not seem restrictive to growth, it increases the borrowing cost for highly leveraged companies. We continue to watch rates closely, as rising rates are certainly one factor that can derail this party. For now, enjoy the party – it is St. Patrick’s Day, after all!
IRS to Delay Tax Deadline – The IRS is planning to delay the April 15 tax filing deadline by roughly one month due to changes to tax laws and pandemic-related work changes. While the change has not been formally announced, it is being reported today that this will happen.
As always, please let us know if you have any question or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance or estate needs.