Stocks rise after President Trump signed the virus relief package. Jason Ware, Albion Financial Group CIO joins Yahoo Finance Live to break down how the stimulus deal and pandemic will impact markets in 2021.
- Emily, stay right there. Let's bring in Jason Ware, who is CIO of Albion Financial Group. We should point out, Jason's joining us on his day off. So we appreciate it.
Jason, let me just get your reaction here to the bill that the President has now signed. It certainly looks like despite expectations of something getting done by the end of the year, it is at least on day one here a positive for the markets. How are you viewing the $900 billion and how supportive that's likely to be for the economic recovery?
JASON WARE: Good morning, guys. Good to be with you. And I think the good news is, is that we've now put this behind us. And I think the will there or won't they narrative on Wall Street and for investors, it's finally been put to rest. And I think that's the overarching story here. And that's good news in the market celebrating that.
But as we peel apart the layers of the bill and look at where the relief is headed, I think that Congress certainly could have done more. They should have done more. But given the mix Congress, I think $900 billion with the targeted relief to folks who are still unemployed who need that. I mean, the stimulus check, $600-- I mean, I agree with Trump and the Democrats that we probably should have done more there.
But at the end of the day, $900 billion with these programs in place and these additional allotments in place is better than nothing. And I think that's what investors are showing in the tape today. So it's something that we celebrate. I think it's good news.
It doesn't have to be the end. We're going to have Biden inaugurated here in 20 some odd days. He's got good relationships with those Republicans in the Senate. And maybe we can get something else after he's in office. So I don't think this is the end. But it is good news today.
- Jason, and on that point about of it not being the end, what assumptions do you have baked into your own outlook for next year about additional measures coming through in more stimulus, if that is what you think is going to occur in the New Year?
JASON WARE: Yeah, so you know while I think it would be an upside bull case to add additional stimulus to at least what our outlook is to next year, we're not assuming that we're going to get more. I think there's a good chance that we will. But we're not using that as one of the operating assumptions to our bull case for next year. And the truth is that even without another stimulus bill, the economy has quite a bit of momentum, I think, going into the New Year.
Just given the historic excess liquidity that's sitting out there, typically if you look at the policy responses over the last five or six decades in terms of monetary and fiscal policy, you don't really see that hit the economy until 6 to 12 months down the road. There's still a very high savings rate. And again, like I mentioned, the money stock is up anywhere between 25% and 40% since this pandemic began. So we think that's a lot of spooled up money that's going to hit the economy next year.
Meanwhile, there's a fair amount of pent up demand. And we're going to have pandemic ending vaccines. And I think that's the real story for 2021, not so much another round of stimulus. Again, I think if they were to come back with $2,000 checks for households, or another boost to PPP, or extended unemployment again in the spring if needed, that will be an upside layer to that outlook for us. But we're still fairly bullish on next year.
- And speaking of venture, you've said that, look, 2021 is going to be the year where things return to normal, which is something a lot of analysts have said. The question is going to be when that normal does, in fact, return. You're looking at another week here of record number of cases on COVID. Although, we have seen the last two weeks nationally the cases have started to sort of level off here.
How are you looking at the surge that we've been seeing lately and the impact that's likely to have on the recovery? How much do you think that has contributed to a bit of a slowdown in the momentum to pick back up?
JASON WARE: I think it's part of what we're seeing in the slowdown. I don't think it's all of it. I think more likely the reason the slowdown has occurred over the past couple few months is we had such a strong bounce in the summer after having the economy shut down in the spring. So that initial V shape of the recovery was something that was not going to be sustained for six, 12, 24 months. I mean, that's the initial snap back after reopening the economy across the country.
And we saw that in really strong GDP numbers, obviously, for Q3, really strong retail sales, confidence rising, et cetera. That was always going to slow down in WAYN and start to normalize. For example, looking at the housing report in new home sales that we got last week. Month over month, it was down quite a bit. But year over year, it was still up 20%. So I think that's the kind of economic data you can expect over the next few months, is a continued recovery slower than the recovery we saw in the summer.
And if you look at it on a month over month basis, or even on a quarter over quarter basis, which are shorter periods of time, excuse me, you're going to see a little bit slower trends. But on a year over year basis, I think you are going to see that acceleration. So part of that is due to, I think, the case counts rising. Part of that is due to, again, just that snap back in the summer and just kind of coming off of those really accelerated moves.
And I think as we look at the case counts going forward, TSA said this morning they had almost 1.3 million people traveling on Sunday. I think if you listen to Dr. Fauci and if you've been watching the pandemic like we all have for the last nine months, I think we can expect case counts to rise over the next two to three weeks, which is an unfortunate human story. But I think as we look at the economy and as investors look at this, they're looking through the next few months and looking at pandemic ending vaccines that are going to put the economy back on a normalized path.
- And Jason, as we look a little bit further ahead maybe to the second half of next year, do you see the markets dependence on the Fed's liquidity on its quantitative easing program as becoming something of a liability at that point once we do get to that point in the recovery when they may start to signal that they are going to be rolling back some of these crisis era programs?
JASON WARE: It's a really great question. And I think one of the narratives in 2020 that's not getting a lot of attention that should be is we're going to see a year where Jerome Powell's new framework for monetary policy is going to be tested. And they've been very clear over the last couple of months that this new framework, this average inflation targeting and having the tolerance to let inflation run hot for a while to make sure we get on the other side of this before they adjust their policy response, we're probably going to see as we get through the year into the second half of 2021 some testing of that.
And I think that's probably going to cause some turbulence among investors and on Wall Street as folks start to say you know what, maybe it isn't 2023 when they raise rates. Maybe it's going to be 2022 because inflation is 2% right now, or because the economy is growing at 4% or 5%. That's something that I think we're going to have to work through. But I think at the end of the day, at least we're taking Jerome Powell and the FOMC at their word right now, that they want to get well on the other side of this before they make any adjustments. They would rather see the economy run hot for a quarter or two or maybe even a year, then pull back support too quickly and risk undoing a lot of the gains that we've made. So we don't think it's a big risk, but I think it's something that's not being talked about.
And we absolutely are going to test that framework in 2021 with growth and inflation.
- Yeah, it'll be also interesting to see how that relationship is going to be between Treasury and the Fed as well with Janet Yellen coming in. Jason Ware, it's good to talk to you today. Go enjoy the rest of your week off. He's the CIO of Albion Financial Group.