Stimulus bills have been the dominant market story of 2021, and it looks like more fiscal spending might be on the way. Despite much hand wringing over whether all this government spending is good for the economy long-term, it’s clear that the stimulus has made a short-term impact, and that it enjoys widespread popularity among the people.

Recent polling seems to support the President’s ambitions, so much so that it may be encouraging him to ramp them up. At the end of March, President Biden unveiled the American Jobs Plan, an ambitious $2.3 trillion infrastructure proposal stretching across a wide swath of industries. And just last week, the President rolled out an enormous $1.8 trillion plan to further support children and families. Should anyone forget, all this spending comes hot on the heels of over $5 trillion in COVID-related stimulus, spent in just 12 months across six separate packages, a historical US spending record, even when adjusted for population and inflation.

Politics and Popularity

Whether you agree with his grand ambitions or not, President Biden’s big spending initiative, known as the three-part Build Back Better plan, is off to a popular start.

Starting first with the government’s massive COVID-19 response, President Biden appears to be getting high marks. Boosted by the passing of the American Rescue plan, two separate polling agencies recently pinned his approval rating on ‘handling the pandemic’ at 69% and 65% (sources: NBC, Reuters/Ipsos), high numbers for today’s deeply polarized political environment.

Next on infrastructure, the public seems to already support the proposed American Jobs Plan. A Monmouth poll shows that two out of three respondents are in favor of the increased spending, a number that is surely emboldening the President and his supporters.

Lastly, the President’s upcoming American Families Plan is aiming to bolster government spending on healthcare, childcare, and education. This plan appears to have broad support too, at least according to polling done before the additional details were released. The same Monmouth poll finds that 64% of respondents are in favor of the upcoming American Families Plan, even though they haven’t seen it yet.

A Mix of Everything

Looking at infrastructure specifically, it’s an issue that everyone says they agree on, but a bipartisan consensus has proved elusive for years. Each side has a different definition of ‘necessary’ infrastructure, and for the President, his definition appears to be particularly expansive.

The American Jobs Plan is looking to tackle a long list of initiatives, and they include steering manufacturing back onshore, bolstering the US technological lead over China, reducing carbon emissions, and addressing long-standing inequities within underserved communities, as well as providing funding for rural broadband, affordable housing, public transit, electric vehicles, and education. All of this is in addition to the usual funding for roads, bridges, and highways that typically make up the government’s ongoing smaller infrastructure maintenance bills.

Should it pass, this bill could certainly have an impact on US growth. Many of these initiatives are major undertakings that would require a plethora of public-private collaboration and new job creation across wide swaths of the country. These types of measures would no doubt enhance growth.

Of course, these proposals are just that, proposals, and it is very much unclear how much of these ambitions can realistically pass. Additionally, how the President aims to offset these proposals with higher revenues (i.e., tax increases) are a huge part of the puzzle. Ideas such as increasing the corporate tax rate, raising the global minimum tax, and more, will dictate the efficacy of these programs. Spending programs that are targeted toward boosting the productive capacity and output of the country may have a bigger bang for the buck on economic growth than others.

Long-Term Impacts

For the President, the bills are part of an ambitious, big-spending gambit, and we still don’t know how these proposals will impact markets longer term. The devil will remain in the details, and their fluid nature makes it difficult to pin down specifics.

From a macroeconomic standpoint, we believe the economy already looks quite strong. Economic growth expectations are as robust as they have been in 40 years, and the strength of the economy is starting to show up in corporate earnings. As of April 30, approximately 60% of S&P 500 companies have reported earnings, and of those, 86% and 78% are reporting earnings and revenue results above Wall Street expectations, respectively, per FactSet. Further spending has the potential to add even more fuel to an already well-lit economic fire, further supporting markets in the process.

For our bottom-up investment strategies, we will continue to monitor how these proposals evolve and their potential impact on specific industries and businesses. From a big picture, top-down perspective, we continue to believe that a balanced approach to asset allocation remains appropriate—as elevated valuations and sentiment levels offset strong fundamentals—with certain strategies leveraging their adaptive, flexible processes to be more over/underweight depending on investment strategy.

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This material contains the opinions of Manning & Napier Advisors, LLC, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. The reader should not assume that investments in the securities identified and discussed were or will be profitable.

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