On record chase: USA beyond expectations
04.05.2021 23:04 - La Financière de l'Echiquier
Joe Biden’s America is pushing the boundaries far further than anyone could have expected, whether in terms of stimulus packages already passed and proposed, corporate earnings, the recovery in employment or the extent of support from the Fed.
Let’s consider only a few examples. Amazon, one of the major beneficiaries of the lockdowns in 2020, tripled its net earnings in the first quarter of 2021, outperforming all expectations even as restrictions were already eased across the US. Lockdown or no lockdown, Amazon is flourishing.
Not to be outshone, the other major tech companies also showed strong net profit rises of 163% for Alphabet Google’s parent company, 110% for Apple, 94% for Facebook and 44% for Microsoft. And this isn’t a bounce – last year was already a cracker for these companies.
A (small) portion of these earnings will not benefit shareholders alone. Amazon has decided to raise the wages of 500,000 of its lowest-paid employees, albeit on the back of political pressure. On a broader scale, disposable household income jumped by a staggering 21% in March thanks to the relief cheques distributed by the Biden administration.
Unprecedented aid programs under Biden - with what impact?
At the federal level, aid and investment packages supported by Joe Biden go beyond any levels previously seen. After two generous aid packages passed under Trump, one of Biden’s first moves after taking office was to add an additional stimulus of USD 1.9 trillion with the American Rescue Plan. Not content with these measures, he is now proposing to add the American Jobs Plan and the American Families Plan, together worth close to USD 4 trillion and covering a range of areas including infrastructure, healthcare facilities, struggling families and education.
Does this go beyond what is reasonable? Larry Summers, an influential US economist who is close to the Democrats, fears overheating. But the market doesn’t – not yet anyway. Interest rates have been calm in recent weeks.
Does this go beyond what is politically possible? The two new plans under discussion have attracted Republican opposition and sparked debate, including among the most moderate Democrats. Yet how many Democrats will actually dare oppose support packages that will start to kick in before the mid-term elections?
Despite all records - markets show themselves unimpressed
As was so often the case during the course of its history and despite all its faults, today’s America is energetically pushing the boundaries beyond anything we could have imagined. And this even holds true for its willingness to question itself. Biden’s forthcoming plans provide for a substantial rise in taxes on the richest and on corporations, in contrast to the fiscal dumping practised for decades.
Despite all this, though, the markets are not rocketing. The accumulation of good news is such that, coupled with fears surrounding rising taxes and inflation, markets have barely moved during this record-breaking week. Markets are saturated with prosperity and vaguely worried about its consequences. They are still digesting the feast. But it’s a good sign that neither equity nor bond markets are on fire as it means they are in a phase of rational optimism rather than irrational exuberance. This may be frustrating in the short-term, but it’s reassuring if we look beyond that.
By Olivier de Berranger, CIO and Alexis Bienvenu, Fund Manager
Redaction 30th April 2021
