October 26, 2020

The US economy can live with stimulus being delayed as long as it is implemented by early 2021, JPMorgan says

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  • The US can live with a delayed new federal coronavirus relief package as long as it is implemented by early 2021, JPMorgan Asset Management global strategist Patrik Schowitz told CNBC.
  • “It’ll be better to get the stimulus now but as long as we get it early next year, we think the economy will be able to get through that,” the global strategist said, after President Donald Trump abruptly halted discussions over stimulus spending.
  • A second round of spending could be pushed to after the elections because both Trump and Democratic challenger Joe Biden want their name on the package, he said.
  • For investors, Schowitz recommended being “overweight” on risky assets like credit and equities in the medium-term.
  • Visit Business Insider’s homepage for more stories.

The US economy “can live” with the second round of stimulus being delayed until after the presidential election as long as it comes into effect by early 2021, Patrik Schowitz, a global strategist at JPMorgan Asset Management, told CNBC on Wednesday. 

Major economists were mostly expecting the next round to be dragged into next year anyway, Schowitz said, after President Donald Trump abruptly ended stimulus negotiations on Tuesday.

American households have put away a massive amount of savings this year, as they haven’t been able to spend at normal levels, suggesting that the economy can “get through” even with a delay in relief, he said. 

“It’ll be better to get the stimulus now, but as long as we get it early next year, we think the economy will be able to get through that,” the strategist said.

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While the economy’s continued fragility is potentially negative for markets, federal relief could be pushed to after the elections, because both President Donald Trump and Democratic nominee Joe Biden want their name on it, he said.

Owing to multiple risk factors over the next two months, Schowitz recommended cutting down on the size of positioning across portfolios. At the same time, he said the general direction of markets and the economy should go upwards considering the US is already through a recession and into the next economic cycle.

In the medium-term, he said, investors should be positioned risk-on and be “overweight” on risky assets like credit and equities.

A technical indicator, called the advance/decline line, flashed a bullish signal by hitting all-time highs early this week, suggesting that there is more upside ahead for the S&P 500. A rising advance/decline line indicates that more stocks are moving higher than moving lower.

After Trump unexpectedly ended talks of further relief by accusing Democrats of “not negotiating in good faith,” which triggered a swift drop on the stock market, he appeared to somewhat change course by calling for $1,200 direct payments and small business aid on Tuesday night.

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