What Biden's $1.9T Stimulus Means for Investors

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President Biden made history yesterday, signing into law a $1.9 trillion stimulus package that will have long-lasting effects on the economy, consumer activity, and popular opinion on fiscal policymaking and deficit spending.

For investors looking to understand what the stimulus bill means for stocks and the economy, they should bear in mind a few key elements of the package.

Obamacare Expansion is a Boost for Healthcare Sector

Biden’s stimulus package includes a substantial $34.2 billion add-on to the Affordable Care Act (“Obamacare”) in the form of insurance subsidies. The provision is the first major expansion of President Obama’s signature healthcare bill since its passage in 2010.

Under the bill, subsidies on the Obamacare marketplace become newly available to those who are higher income earners, but who don’t have health insurance through their employer or the government.

In other words, Biden’s bill further entrenches Obamacare into the architecture of US healthcare. That alone is a good sign for health insurance giants, which have thrived under Obamacare. Firms like Aetna, Anthem, Cigna, and Humana have all grown enormously under the healthcare law.

Investors should also keep their eyes on healthcare startups like Oscar, the insurer startup which went public earlier this month, as well as telehealth companies like Livongo. These technology-enabled healthcare firms stand to benefit under a bolstered healthcare system.

Vaccine Cash is Good for Vaccine Makers and Value Stocks

The stimulus law features a whopping $160 billion for vaccine development and distribution to help the US overcome the coronavirus. That includes $20 billion to create “community vaccination centers” across the US, working closely with states, municipal governments, and other localities.

For one, the funding allocated to vaccine development is a good long-term sign for vaccine distributors, particularly Moderna, which has been one of the best performing stocks over the last 18 months.The vaccine producer’s innovative mRNA technology (which has also been pioneered by Pfizer) could be vital for inoculating against future pandemics, in addition to flu season and other diseases. Receiving the government’s backing will help these companies’ future innovation efforts and sustainability as long-term companies.

In addition to helping vaccine makers, the stimulus will accelerate the rate at which the US population gets vaccinated, which should hasten the end of the virus and its disruption of the US economy. Biden’s statement last night, in which he urged states to make all adults eligible for vaccines by May 1, will further speed up the process.

Widespread vaccination will be a further boon to so-called “value stocks”, which have already enjoyed a substantial rotation over the last few weeks (at the expense of “momentum stocks”, most of which are tech companies whose shares have soared during the pandemic). In addition, a virus-free country with ample stimulus will push up shares of companies that still trail their pre-pandemic levels. For instance, air carriers, hotel chains, movie theatres, and other industries battered by Covid may stand to benefit from the widespread vaccination that seems imminent.

Unemployment Insurance and Child Tax Credits Good For Large Retailers

Perhaps the most consequential parts of the stimulus package are the extension of unemployment benefits at $300 per week, and the bump in the child tax credit from $2,000 per child to $3,600. These two policies, while different in nature, will have a similar effect: Boosting consumer spending.

The unemployment rate in the US is hovering at 6.2%, which is nearly double the pre-pandemic rate of 3.5%, meaning there remains over 4 million more unemployed people today than just over a year ago. The extension of unemployment benefits will ensure that these 4 million consumers continue to spend money on the basics: groceries, utilities, haircuts, and other small-ticket products and services that are the backbone of the economy.

The same goes for child tax credits. With tax season upon us, families will be looking forward to nearly double as much money as they’d normally receive. For parents whose incomes have been slashed or disappeared during covid, this new source of income will free up spending for more essentials, as well as gifts, travel, and other “nice to haves”.

What do the effects of these policies mean for stocks? For one, it means that large retailers companies like Costco, Walmart, Amazon, and other providers of food products and household items will continue to thrive, as they have during the pandemic.

In Short: The Economy Likes Stimulus

The bottom line is that Biden’s $1.9 trillion stimulus bill is not only a life raft for low income Americans, but the broader US economy. By putting more money in peoples’ pockets, and by taking steps to help the US overcome the pandemic, the coronavirus relief bill should provide a fresh jolt for stocks, particularly those that have lagged in the last twelve months. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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John Hyatt

John Hyatt is a freelance journalist covering financial services, market structure, stocks and IPOs, and private equity. Prior to entering journalism, John worked in public relations for clients in financial services, investment management, fintech and cryptocurrency. John is currently receiving his M.A. in business and economic reporting from NYU as a Marjorie Deane fellow.

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