The $1.9 trillion stimulus package passed by Congress this week was signed into law by President Joe Biden on Thursday. This is good news for Americans who are in need of help due to the pandemic. It is, however, a significant plus for investors.
Following a brief pullback after bond yields soared and inflation worries surfaced, stocks have resumed their rally this week. Many winners are expected as a result of the Covid relief bill, according to Wall Street analysts.
Companies with direct links to customers, such as supermarkets and leisure companies, stand to profit the most, according to Jefferies analysts and economists in a study released this week.
That’s because many Americans who have been mostly trapped at home for the past year and have been able to save money might be itching to go shopping and travel again.
Money from the stimulus package would just add to the future spending strength. The personal savings rate in January was 20.5 percent, according to the government. While this is down from a high of nearly 34% in April of last year, it is still significantly higher than the pre-pandemic savings rate of 7.6% in January 2020.
“We see the makings of the strongest consumer stock backdrop in decades,” said Jefferies chief economist Aneta Markowska in the report, adding that spending should be “robust” through 2022 as the “vaccine rollout and re-opening of services merge with stimulus and elevated savings.”
Airbnb, restaurant chains Bloomin’ Brands (BLMN) and Brinker (EAT), theme park operator Six Flags (SIX), Southwest (LUV) airlines, Lyft (LYFT), Home Depot (HD), Lowe’s (LOW), and TJX (TJX) are among the businesses that Jefferies analysts believe have the greatest chance of gaining as customers invest stimulus money and venture out out into the world.
Other strategists agree that, as a result of the stimulus, economically responsive industries have a chance to outperform.
In a paper, Mark Haefele, chief investment officer at UBS Global Wealth Management, said, “The rotation out of tech and other growth stocks into cyclical areas of the market has further to run.” “We suggest that investors transfer their stock exposure to financials, industrials, and oil stocks, which are expected to benefit from higher growth and a steeper yield curve.”
In other words, the so-called FAANG stocks, such as Microsoft (MSFT) and Tesla (TSLA), may eventually start to lose steam. (It’s true.) You’ve already heard that before, but it could really happen this time.)
Analysts may begin to pay more attention to value stocks, but investors must be careful not to buy stocks simply because they appear to be cheap. Value pits, or stocks selling at low valuations because they aren’t rising much, or shares in zombie businesses with heavy debt loads, are examples.
“The name of the game is quality for value stocks,” said Thomas Friedberger, co-chief investment officer with Tikehau Investment Management. “Look for the companies with the right management teams and strong balance sheets.”
In addition, beyond stocks, investors have other options. State and local governments will receive around $350 billion in funding as part of the Biden stimulus package, according to Karel Citroen, head of municipal research at Conning, in an interview with CNN Business.
As a result, municipal bonds backed by local government spending should benefit from the stimulus package. Governments would be able to use some of the funds to cover revenue losses as a result of the pandemic, as well as to compensate directly for Covid-related expenditures, according to Citroen.
States and cities will benefit indirectly as a result of the stimulus, according to Citroen.
“The federal assistance could boost tax collections because customers would go out and spend more, resulting in higher sales tax revenue,” he said.
Citroen made no clear recommendations for buying state or local municipal bonds. Big money managers such as Pimco (MUNI), BlackRock’s (BLK) iShares (MUB), Invesco (BAB), and VanEck (HYD) all deliver diversified municipal bond ETFs, which is good news for investors.