Today, the House of Representatives passed and President Trump is expected to sign into law a $2 trillion fiscal stimulus bill designed to offset the impact of the coronavirus on the U.S. economy and the American public. Called the Coronavirus Aid, Relief, and Economic Security (CARES) Act, this historic bipartisan stimulus package will provide timely financial aid to American workers, loans to small businesses, and lending and direct aid to impacted industries. The combination of this third stimulus package and the Federal Reserve’s pledge to provide market liquidity, renew its asset-purchase program, and keep interest rates near zero, could provide much-needed support to the capital markets.
After a week of wrangling over specifics between the House of Representatives, the Senate, and the White House, President Trump is expected to sign the CARES Act into law late this afternoon. It includes aid totaling 10 percent of gross domestic product (GDP), making it, by far, the largest economic relief in U.S. history. This comes on top of the Fed’s actions, which equate to another 10 percent of GDP.
As you would expect, the CARES Act covers a lot of ground. A few notable highlights include:
- Individuals making $75,000 a year or less (as reported on their 2018 federal income tax returns) will receive a $1,200 check. Couples making $150,000 or less will receive $2,400, with an additional $500 per child. The check amount declines gradually as income rises. Individuals making $99,000 or above or married couples making $198,000 or more will not receive a check. According to news sources, checks will be cut by April 6.
- The Act also includes roughly $130 billion of assistance for hospitals and other healthcare providers for supplies and equipment, $350 billion for small businesses to help them meet payrolls, and $500 billion in aid for corporations in hard-hit industries, such as airlines and cruise lines, as well as state and local governments. Companies receiving government loans are prohibited from stock buybacks and must limit bonuses paid to executives.
- Also included is a $370 billion fund to provide grants and low-interest loans for small businesses through the Small Business Administration to mitigate layoffs and support payroll. In addition, employers will get a payroll tax deferral (with the ability to stagger repayment of those taxes in the future). The deferral only applies to employers, and not to employees.
- The Act also bolsters unemployment insurance by increasing and extending payments and including workers who don’t typically qualify, such as gig economy workers, furloughed employees, and freelancers.
- States will receive $150 billion of assistance to offset the virus’s revenue impact, including $400 million of aid for the upcoming 2020 elections to help expand voting by mail, early voting, and online voter registration.
Roughly three weeks into the coronavirus-induced market selloff, the capital markets remain in recalibration mode. While the stock market’s daily price swings and the bond market’s unusual behavior have disconcerted many investors, this week has brought some relative calm as Americans awaited the outcome of stimulus deliberations. Meanwhile, the coronavirus remains a public—and personal—health issue as cities and states ask residents to pause their daily lives to stem the virus’s spread. Some locales have been hit hard, while others have yet to feel the impact.
Despite passage of this historic stimulus package, you should expect continued market volatility as investors weigh new information—about both public health and the economic impact of the virus—and adjust their expectations. This recalibration can take time as trends and impacts take time to emerge. In particular, investors are paying special attention to the resumption of economic activity in China, as it was the first part of the world to face a widespread shutdown in activity and is now the first to emerge from it.
As always, a well-diversified portfolio tailored to your appetite for risk and personal financial goals and objectives is the best long-term strategy and can help provide the peace of mind necessary to stay the course through volatile markets. Periods like the one we are experiencing are causes of concern, but they often also create opportunity and prompt long-term investors to consider their asset allocations and ensure that they are taking an appropriate level of risk.
We will be tracking the virus’s spread and the resulting economic impacts actively, and we will keep you apprised of what we learn. In the meantime, please reach out to your CAPTRUST financial advisor if you have questions or concerns.