The stock market has hit a skid so far this year, but it’s poised for a rebound, says Kate Warne, principal and investment strategist at asset manager Edward Jones.
As talk about the economy has largely focused on tax cuts, the U.S. budget deficit and the potential for trade tariffs, one of the biggest things investors and the general public seem to be missing is the increased spending soon to be pumped into the U.S. economy by the government.
Congress passed a $1.3 trillion spending bill in March that provides big increases to the military and to domestic programs lifts strict limits on military and domestic spending this year. Defense spending is set to jump $80 billion over previously authorized levels and domestic spending will rise by $63 billion. The bill is full of pay raises for military and government personnel and additional spending by the Pentagon as well as funding for infrastructure, medical research, veterans programs and efforts to combat the opioid epidemic.
Even if rising interest rates and worry over trade tariffs or other negative headlines from Washington inhibit consumer spending, much of the impact will be offset by the government’s outlay, Warne argues. And while it may be difficult to pay significant attention to the stimulus now, because it hasn’t yet begun to impact the economy, it’s an economic catalyst that should not be ignored.
“People forget there’s another source of growth. The federal government’s going to spend a lot of money that supports the overall economy in a way that we haven’t seen for a number of years,” Warne told Yahoo Finance. “The chances of economic growth slowing a lot in an environment where the federal government is literally putting a lot more money to work in the economy is pretty low.”
While she agreed that perhaps the timing of the increase may be unorthodox – echoing a warning given by IMF Managing Director Christine Lagarde at this year’s spring meeting for fiscal prudence during strong economic times rather than increased spending – Warne believes the coming stimulus is one reason the market’s recent malaise is unlikely to last.
“We could argue about ‘Is it the right time in the cycle? Should we be fixing the roof of the deficit as opposed to doing this?'” she said. “But they’re doing it. So let’s at least try to incorporate that into the outlooks we’ve got.”