Wall Street hikes expectations for size of Biden's spending package
Big money managers say spending plan will total $1.9T: BofA
‘The Watchdog on Wall Street’ radio show host Chris Markowski, CFRA chief investment strategist Sam Stovall and Optimal Capital director of strategy Frances Newton Stacy on the markets.
Wall Street money managers are upping their expectations regarding the size of President Biden’s infrastructure package, according to a survey conducted by Bank of America.
Investors say the spending plan, made up of both the bipartisan bill and the reconciliation package, will total $1.9 trillion, up from $1.7 trillion last month.
Investors have gotten "more bullish on the passing of the bipartisan bill and the reconciliation package at some point in the autumn," wrote Michael Hartnett, chief investment strategist at Bank of America.
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The Charlotte, N.C.-based lender surveyed 232 participants with $807 billion in assets between Sept. 3 and Sept. 9.
House Democrats earlier this week outlined their plans to raise taxes on corporations and the wealthiest Americans to pay for Biden’s proposed $3.5 trillion "human infrastructure plan" that would need to pass the Senate via budget reconciliation to avoid a Republican filibuster.
The tax hikes include raising the top corporate tax rate to 26.5% from 21%, the top personal income tax rate to 39.6% from 37% and the top capital gains tax rate from 25% to 20%.
But Sen. Joe Manchin, D-W.Va., has publicly opposed the plan, saying he did not see the urgency to pass a massive spending package. Manchin instead would rather take a wait-and-see approach and maybe favor another $1 trillion to $1.5 trillion in spending on top of the approximately $1 trillion bipartisan infrastructure plan.
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While Wall Street fund managers are raising their expectations regarding the size of Biden’s infrastructure package, they are becoming less worried about inflation.
Bank of America’s survey found a net -1% are expecting higher global consumer prices, down from a positive 93% in April.
A net 69% of respondents said inflation is "transitory," up from 65% in August. Just 28% think inflation is "permanent."
Despite declining inflation expectations, the vast majority of respondents, a net 84%, continued to believe the Federal Reserve will begin tapering before the end of this year. A net 19% said the Fed will signal tapering at next week’s meeting while 66% believe the central bank will wait until the fourth quarter.
Forty-nine percent of investors said the COVID-19 delta variant would be the most likely reason the Fed would delay its tapering. Another 36% said the strength of the labor market.
As investors prepare for the Fed’s taper, their cash holdings have increased slightly to 4.3%. There is no sign of panic as equity protection is at the lowest level since January 2018. Additionally, few investors are positioning their portfolios for credit events, recession or stagflation.
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While inflation was viewed as the biggest "biggest tail risk" for the sixth time in seven months, long tech was seen as the "most crowded trade" for the third straight month.
Contrarians should position for recession by going long bonds and utilities, short commodities, banks and Europe. Stagflationists should go long Japan and energy and short health care and tech, the survey found.