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THE FADING FISCAL POLICY TAILWIND

by Fortem Financial June 15, 2021

The resiliency of US stocks has been remarkable in recent weeks with rising inflation, weaker than expected employment, fiscal stimulus decelerating, geopolitical tensions rising, and new fiscal policy negotiations in disarray. Still, we could not help but notice the change in sentiment among investors this week following a second disappointing employment report. Investors are grappling with tighter China monetary policy and fading fiscal stimulus.

Nearly all of the discussions among investors this week were about the flattening yield curve, the potential for a fiscal drag in 2022, and the prospects for new fiscal legislation. March was the peak month for fiscal stimulus with consumers receiving $445bn of direct payments and that trend is now decelerating. This week four states are ending their $300 a week extra unemployment benefit, and, over the coming weeks, 21 other states will follow. We believe generous unemployment benefits are distorting the labor market and this benefit expiring will improve labor force participation. But job growth would need to pick up meaningfully from here to offset the lost income from the benefits expiring.

Any new stimulus, such as the monthly child tax credit in July, is much smaller than the direct aid distributed earlier this year and just offsets the impact of higher inflation. Regardless of what happens on an infrastructure package, the US will have at least a $1.5 trillion fiscal drag in 2022. Next year will be one of the largest fiscal drags in US history. This is because the infrastructure spending takes years to be distributed, “new” social spending is just offsetting what has been spent, and tax increases, if included, are immediate.
Source: Strategas


Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by FactSet.

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Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

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The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
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