Stock markets are cautiously upbeat that a stimulus package can be agreed in the U.S. before the November 3 election – but even if it does happen, it’s likely to be a “short-lived sticking plaster” that masks the major long-term issue: unemployment.
House Speaker Nancy Pelosi and Secretary Steven Mnuchin spoke again on Tuesday – the deadline imposed by the Speaker – as the two sides tried to strike a deal over another significant fiscal stimulus package ahead of the election.
Earlier this month, Republican senators slammed a $1.8 trln offer made by the Trump administration to the Democrats as too big, an offer Pelosi dismissed as “insufficient.”
Discussions are due to continue on Wednesday upon the Secretary’s return to Washington.
“No doubt, a breakthrough of the deadlock that would allow for more stimulus would provide a lifeline to millions and millions of Americans,” said Nigel Green, CEO and founder of the financial advisory and fintech deVere Group.
“U.S. and global markets are, generally, cautiously optimistic that a deal can be agreed by the two sides. There’s a sentiment that something will have to materialise – and this is fuelling markets.”
However, Green warned that the window of opportunity is closing and it is not yet a done deal.
“If talks collapse, the markets will inevitably be disappointed and there’s likely to be a short-lived sell-off,” he said.
“Even if Pelosi and Mnuchin can get another massive stimulus package agreed, and U.S. and global markets rise, this is likely to serve only as a sticking plaster.
“A market rally is going to be difficult to sustain due to the enormous uncertainty created by other factors including the presidential election, a possible looming constitutional crisis in the world’s largest economy, and the growing Covid-19 infections in America and other major economies.”
The deVere CEO added that getting over the political impasse would help boost the economy and deliver much-needed money to Americans, but the major, lasting issue triggered by the pandemic remains: mass unemployment, which will hit demand, growth and investment.
“As such, a swift rebound for the U.S. economy is doubtful as unemployment claims continue to rise.
“That V-shaped recovery talked about by so many? That will be impossible with so many millions facing long-term unemployment,” the deVere CEO said.
Whilst it is certainly positive that unemployment has fallen from 15% in the U.S. to 11% in recent weeks, it should be remembered that this is still at the same rate of the 2008 crash.
In addition, a second wave of soaring unemployment could hit imminently as some support measures wind-down and business’ and households’ savings and resources have been already run-down.
“Near-term support for sure, but a long-term strategy – a multi-year vision – for growth and investment is essential,” concluded Green.
“What’s needed is not just more stimulus, but smarter stimulus.”