$1.9 Trillion Stimulus Passed, Treasury Yields Soar, Homeowners Tap Equity
In today’s Steady Investor, we look at what is going on in the markets and our key takeaways and questions for investors to consider, such as:
- $1.9 trillion stimulus bill becomes law
- What’s causing treasury yields to soar?
- Cashing out of homes
$1.9 Trillion Stimulus Bill Becomes Law – The U.S. government has not shied away from passing massive spending bills and running trillion-dollar deficits in an effort to usher the economy through the pandemic. This week, $1.9 trillion more dollars are being injected into the economy, which is likely to course its way through the real economy and the capital markets, in our view. There’s an old saying that investors should not “fight the Fed.” Well, investors shouldn’t fight the federal government, either. All told, the government has spent nearly $5 trillion in an effort to keep the economy moving, which is probably about double what was actually needed, in our opinion. Nevertheless, economists expect the latest round of stimulus – and the money that came before it – to generate the fastest annual GDP growth the U.S. has seen since 1983. The notion of 5+% GDP growth in 2021 is not farfetched. In the bill are $1,400 checks to individuals making under $75,000 a year, and $2,800 checks to married couples making under $150,000. Parents with children under 17 would also receive a $1,400 check for each child. The bill also has an extension of the $300/weekly unemployment benefit boost, one-year of an expanded child credit, and billions for schools, vaccine distribution, and state and local governments.1
There will always be events that shift the market, such as, the stimulus bill being passed and treasury yields driving higher. We are currently witnessing a very volatile market, and in times like these, investors may emotionally attach themselves to news and headlines that affect their financial decision-making process. The market has always fully recovered, but what about this time? How soon will it recover?
Feeling uncertain about what’s to come is normal, but don’t give into fear and panic! As difficult as it is to remain calm in this environment, focus your actions right now to better plan your financial future.
That’s why we have put together a free investing playbook with insights and guidance to help you seek success when investing through these unprecedented times. If you have $500,000 or more to invest, get our free investing playbook today.
What’s Driving Treasury Yields Higher? We have written before about the sell-off in U.S. Treasuries thus far in 2021. When Treasury bond yields are pressured higher, the prices of the bonds fall – hence characterizing it as a “sell-off.” The benchmark 10-year U.S. Treasury note started the year under 1% and is now trading above 1.5%, a move many believe is tied to the expectations of an economic recovery and possibly higher inflation in the coming months and years. But there could be more at play – analysts and traders on Wall Street have noted that the volume of Treasuries flooding the market is bordering ‘out-of-hand’ territory. Because of the trillions of dollars being spent by the federal government during the pandemic (see story above), they are issuing debt (Treasury bonds) at a breakneck pace. As we know from macroeconomics 101, when supply goes up quickly, prices tend to fall. It follows that net new supply of 2- to 30-year U.S. Treasury bonds is on pace to reach $3 trillion this year, up from $1.7 trillion in 2020 and just $990 billion in 2019. Fed purchases of Treasuries are also going down, leaving the market with excess supply. Even still, the demand for Treasuries remains relatively strong, which is at least ensuring the market functions efficiently.3
Cashing Out of Homes – Homeowners have been refinancing their homes to extract cash at levels not seen since the financial crisis. In 2020, U.S. homeowners withdrew $152.7 billion in home equity, which marked a 42% increase from 2019 and is the most borrowed equity since 2007. This trend is worth watching, as it could be another indicator of consumer and investor sentiment shifting too far into “risk-on” mode. To be fair, home prices have risen solidly on the heels of rising demand, as millennials shift from big cities to the suburbs and increasingly consider buying versus renting. Home prices rose throughout 2020, even as the pandemic bruised other parts of the economy. Some homeowners say they pulled cash to cushion against uncertainty, while others are opting to redecorate or remodel homes. In the cases where homeowners are pulling cash out of homes to invest in a strong stock market, there should be concern about too much risk-taking.4
Life during the pandemic has not been easy and may have caused uncertainty when trying to plan your financial future. While it’s difficult to remain calm, it’s also important to take actions right now that have the greatest potential to define your financial future.
That’s why we have put together a free investing playbook5 with insights and guidance to help you seek success when investing through these unprecedented times. If you have $500,000 or more to invest, get our free investing playbook today. You’ll learn about seven time-tested guidelines to help you seek investing success.
2 Zacks Investment Management reserves the right to amend the terms or rescind the free Black Swan Investing Playbook offer at any time and for any reason at its discretion.
3 Wall Street Journal. March 10, 2021. https://www.wsj.com/articles/flood-of-new-debt-tests-bond-market-11615372201
4 Wall Street Journal. March 11, 2021. https://www.wsj.com/articles/cash-out-refinancings-hit-highest-level-since-financial-crisis-11615458602
5 Zacks Investment Management reserves the right to amend the terms or rescind the free Black Swan Investing Playbook offer at any time and for any reason at its discretion.
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