Stocks are rising after President Trump signed the coronavirus relief and full-year government funding package into law.

This paves the way for millions of Americans and small businesses to get economic relief as the pandemic continues to surge. In addition, the package includes a $1.4 trillion bill to continue funding the government into September. These measures significantly reduce uncertainty as we head toward 2021 and we remain optimistic on stocks and other risk assets entering the New Year.

The roughly $900 billion follow-on relief bill contains one-time $600 checks per adult or child, a $300 enhancement to weekly unemployment benefits extending to mid-March, $325 billion in aid to small businesses and roughly $190 billion towards education, transportation and COVID-19-related healthcare costs. Starting with the $2.2 trillion CARES Act in March, fiscal support has had a significant impact on mitigating the effects of the pandemic on the economy, and further aid should provide a boost to growth in 2021 and even into 2022.

The Congressional Budget Office (CBO) estimates that the CARES Act helped offset an expected 10% decline in real GDP by 4.7% in 2020 and could provide a 3.1% boost to growth next year. Moreover, the Committee for a Responsible Federal Budget, a nonpartisan independent source of objective policy analysis, projects the most recent bill could add another $610 billion (or ~3%) to GDP in 2021. We anticipate additional fiscal support will be passed, as needed, in 2021 which would provide a further boost to economic growth.

The amount of government support provided in the U.S. and globally to combat the pandemic is staggering. Estimates now show the U.S. is up to $10.4 trillion or 48.5% of GDP (economic output) in combined monetary (potential Federal Reserve liquidity injections of $6.2 trillion or 29% of GDP) and fiscal (potential fiscal stimulus of $4.2 trillion or 19.6% of GDP) stimulus to fight the impact of COVID-19. The Eurozone, Japan, U.K., China and others have provided similar measures for a global total of central bank liquidity injections and fiscal stimulus of about 33% of global GDP.

With this massive global monetary and fiscal policy support, now coupled with the rollout of multiple vaccines, we remain optimistic that a sustainable economic recovery is in place. This should further benefit stocks and other risk assets in the New Year.

Despite some recent softness in economic readings due to the surging virus, we remain encouraged by stocks trading at all-time highs with cyclical stocks (that benefit greatly from the reopening of the economy) showing leadership. While significant near-term headwinds remain from the virus and reimplementation of lockdowns, the rollout of 2 vaccines, which should be followed shortly by others, is allowing the market and business leadership to focus on economic normalization as we move through 2021.

Corporate profits are rebounding strongly from the second-quarter lockdown lows and corporate confidence along with this. Consumers and banks were very healthy heading into the pandemic and the fiscal stimulus is cushioning the shock to consumers and business during the pandemic. Meanwhile, pent-up demand for corporate capital expenditures and consumer spending (especially for travel and leisure) has been building due to the pandemic restrictions.

While the Georgia senate race remains a short-term risk, policy uncertainty has been significantly reduced as a result of the election, the passage of a 2021 budget and follow-on relief package. Geopolitical policy uncertainty should also recede as the incoming Administration takes a multilateral approach to trade and other matters, further helping to support global risk assets.

We continue to favor the deep cyclical Industrial and Material stocks in addition to Consumer Discretionary stocks that all benefit from the economic reopening and sustainable global economic expansion that we see unfolding in the New Year.

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