Trump takes action for economic stimulus
With the White House and Congressional Democrats deadlocked in their negotiations over a fifth fiscal support package, President Trump took matters into his own hands over the weekend and in the process, regained leverage in stimulus negotiations while potentially picking up some much-needed momentum in a presidential race in which polls and betting markets suggest he’s lagging. That sure seems to be the equity market’s interpretation today, as stocks continued to rally, particularly in the economically sensitive cyclical and small-cap space, despite a lack of any significant market-moving data. Any sign that Trump’s re-election odds are improving would be welcome by these sectors that favor his lower-tax and deregulation policies.
With 12 weeks to go before Election Day, we continue to believe that the election may very well hinge on the path of new infections, the continued reopening of the country and the resulting economic momentum. Given real signs of plateauing new infections, renewed momentum in labor markets and in manufacturing, services and housing, and our analysis of national and state polls that shows incumbents and Republican candidates tend to outperform their summer polling numbers, we think that the race for the White House is shaping up to be quite competitive. Since 1980, Republican presidential candidates have tended to outperform their July polls by 5.5 percentage points and incumbent candidates have tended to outperform by 4.4 points. Such results would put Trump in line with the 46.1% vote that won him the 2016 election. Moreover, he trailed by even larger margins at this point in the key battleground states of Pennsylvania and Wisconsin that he ultimately carried.
From Trump’s perspective, the opening provided by Democratic leaders provided an opportunity to flex his political muscle and gain favor with independents tired of the same old back-and-forth in Washington. His executive actions, announced Saturday at his Bedminster, N.J., golf club, included a plan to offer up to $400 per week in a continuation of enhanced unemployment benefits, to be funded 75% by the federal government and 25% by states. In addition, employers would be able to defer collecting the employee portion of the payroll tax for employees making less than $100,000 per year—a move White House Economic Advisor Larry Kudlow said could save the average American $1,200 between now and year-end. The president also directed Treasury and the Department of Housing and Urban Development to help renters and homeowners avoid eviction or foreclosure, and extended a moratorium on federally backed student loan payments and interest charges through year-end.
All told, the measures could represent up to $240 billion in relief—a fraction of what Democrats and Republicans have been discussing. While there are legitimate questions about the ultimate effectiveness and legality of these measures, particularly in an environment where many states are in no financial position to fund enhanced unemployment benefits, none of that really matters. What it shows is that from, a political perspective, President Trump is doing something—anything—to help workers hurt by a pandemic. This is ignored by the Democrats at their own peril. From a policy perspective, we think that Trump’s strategic move increases the odds that Congress and the White House come to terms on relief legislation in the coming weeks that provides a greater level of fiscal certainty for the remainder of the year while supporting the nascent recovery. But even if it doesn’t, at least the president did something.