Informed investors have an obligation to keep up with ongoing political developments. However that’s easier said than done, as U.S. President Donald Trump recently introduced a slew of executive orders.
It’s unusual, as bypassing Congress is typically reserved for situations requiring urgency. On the other hand, arguments could be made in favor of utilizing executive orders during a time when American families and businesses are struggling historically.
For best results, market participants should put their political leanings aside for the moment and focus on the facts.
The nation is still struggling with the fiscal impact of the novel coronavirus, and Trump’s executive orders will effect profound changes in the economy and markets.
The first step, then, is to take stock of the president’s actions without bias or judgment. After all, there are no informed acts until we know the facts.
More than any other, this is the executive order that the media has chosen to focus on. It’s a contentious topic of discussion, as the CARES Act had earmarked $600 weekly per recipient in additional unemployment assistance.
As the $600 in weekly benefits ran out, Congress couldn’t agree on the finer points of an extension. So the president stepped in an issued an executive order to enact “a lost wages assistance program that authorizes the Governor to provide a $400 payment per week, which shall reflect a $300 Federal contribution, to eligible claimants from the week of unemployment ending August 1, 2020.”
Not every lawmaker is pleased with the president bypassing Congress, and not every state is happy to provide $100 of the $400 weekly payments. As a result, there’s talk that this executive order will likely face legal challenges.
Those challenges, however, will take time and might not be successful. So for the time being at least, the president has the upper hand.
For investors, this means that many cash-strapped Americans will have some positive cash flow. However, it probably won’t be enough for them to shop at more upscale retailers such as Tiffany (NYSE:TIF) or Ralph Lauren (NYSE:RL).
Payroll Tax Cut
Between the federal and state benefits, the average recipient is expected to get $708 per week. Investors should consider where these funds are likely to be spent.
Obvious candidates include discount big-box retailers including Walmart (NYSE:WMT) and Target (NYSE:TGT). And for safety and convenience, some will prefer to stay at home and shop on Amazon (NASDAQ:AMZN).
Shoppers might have even more money to spend at these retailers because of Trump’s executive order implementing a payroll tax cut. This gives the Treasury Secretary permission to “defer the withholding, deposit, and payment of the tax” that takes a chunk out of many Americans’ paychecks.
The payroll tax cut is geared towards Americans earning less than $4,000 every two weeks. So again, expect the extra income to be spent on necessities, not luxury yachts and sports cars.
Restrictions on Tenant Evictions
Another significant executive order concerns a possible extension of restrictions on evictions of tenants who are having difficulty making their rent payments. These protections, which were provided for by the CARES Act, lapsed on July 25.
The president’s executive order regarding the extension of these protections is somewhat unclear:
“The Secretary of Health and Human Services and the Director of CDC shall consider whether any measures temporarily halting residential evictions of any tenants for failure to pay rent are reasonably necessary to prevent the further spread of COVID-19 from one State or possession into any other State or possession.”
It remains to be seen whether any concrete actions will be taken in this regard. Investors could consider the possibility that the tenants’ protections will be extended. That would likely be bearish for owners of rental properties.
Therefore, it might be wise to avoid rental-property-focused real-estate investment stocks such as Mid-America Apartment Communities (NYSE:MAA), AvalonBay Communities (NYSE:AVB) and Equity Residential (NYSE:EQR).
Student Loan Payment Deferrals
One other executive order that has garnered attention is the one extending the deadline for certain eligible students to pay off their school loans. The original deadline established through the CARES Act had been September 30.
The president’s executive order extends that deadline to December 31. Importantly, the deferment only applies to interest on “student loans held by the Department of Education.” This stipulation could exclude certain schools and their students from the deferral.
Still, many students will likely have more cash for a while because of this executive order. And where do students spend their money? One study found that the most popular spending spending categories include restaurants, trips and beauty products.
Reacting to the Executive Orders
There’s no one-size-fits-all response to the president’s recent executive orders. Plus, there’s no way to anticipate all of the possible ramifications of these actions.
Probably the most far-reaching orders will be the ones concerning unemployment benefits and payroll tax cuts. These executive orders could potentially put more money in many American’s pockets.
That in turn could keep the broader stock-market rally afloat for a while. Hence, this might not be the ideal time to take a short position against large-cap stocks. More stimulus means that in general, stocks could continue to march higher.
However you choose to react to the president’s actions, don’t go all in with your market bets; stay cautious, as circumstances could change at any moment.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.