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Stimulus & Wealth



2020 has been anything but usual. The market has dropped and recovered despite record job loss and unemployment due to COVID-19. This leaves people wondering what to expect going into Q4 of 2020 and beyond. We have just lived through a tense presidential election and the impact lingers. In this article, we will detail data points to consider as we look towards the end of 2020.

Money Movement

One of the first data points is net worth. People have lost jobs, yet people have still been able to build wealth. In Q1 of 2020, net worth dropped $7.2 trillion dollars, but in Q2 it rose $7.6 trillion. This gives us hope that we can continue to expect wealth to grow heading into the homestretch of 2020.

We cannot talk about wealth without government debt. The Fed has continued to help stimulate and prop up the economy throughout this pandemic. As such, their balance sheet continues to grow. During the second quarter of 2020, the US Government debt level grew $3.3 trillion dollars. While the need for a stimulus plan was undeniable, at what cost did this happen? We may not know for years to come.

As a result of the stimulus, the Federal Reserve Credit jumped 71% from $4.1 trillion to $7.1 trillion during the three months of March through May. These are important to monitor because one of the goals of the Fed is to increase inflation going forward, without losing control and creating hyperinflation.

With this large stimulus package that included direct payments to Americans, deposits at banks increased. Total deposits jumped from $13.4 trillion in February to $15.6 trillion in June. As we progress towards the New Year, look at those deposit numbers to fall, unless we receive another stimulus payment.

Real Estate

Switching gears to real estate, the value of real estate has continued growing in both the first and second quarter of 2020. In the first 9 months of 2020, home prices went up 15% with the median price of single-family homes reaching $350,000. A catalyst for home demand rising is record low mortgage rates. Rates on a 30-year fixed reached an all-time low of 2.8%.

Equities

Looking at stocks, there should be no surprise money moved out of the market. In Q1 of 2020, both stocks and mutual fund shares (MFS) were down $7.1 trillion. However, there was an uptick in Q2 with shares rising $4.8 trillion. Even with the large selloff we saw at the beginning of the year, the NASDAQ has fully recovered, erasing the year-to-date losses.

The Future

What the future holds remains to be seen. Talks are the pandemic could get worse this winter and we are still waiting to receive word on any new stimulus talks. Disposable income continues to fall, with totals falling from $17.3 trillion to $15.5 trillion, just a small margin above February levels.

Same can be said for deposits. Without another stimulus payment, banks are beginning to see deposits dry up. This is a result of people using savings and other means to simply survive, especially those with job loss.

As many would agree, more stimulus is essential. Without it, the credit markets could contract and hurl our economy into a recession. One can argue another stimulus package is a matter of national security. China is also in a position where they could be the world’s leading economy sooner.

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