More Stimulus Is on the Way

This past week, Congress passed the much anticipated $1.9 trillion stimulus package, bringing the total fiscal response to the coronavirus pandemic to a mind-boggling $5.1 trillion over the past year – 25% of total U.S. GDP.

“That type of spending doesn’t come without consequences,” says John Stewart, chief investment officer at Farmers Trust Co. “We’ve already been talking about the inflationary pressures we’ve been expecting to be building into the system, and they’re starting to show up.”

In the last eight months, steel prices have increased more than 100%, lumber up more than 60% and gas prices are on the rise as well.

If we don’t repeat with any additional stimulus come 2022, we could experience what’s called a “fiscal cliff,” he says, which could put a recessionary watch on the horizon.

For this week’s featured insight, Stewart cautions against the stocks that everyone loves. While some may feel there is safety in numbers, stocks that become over-loved and over-owned “may be setting themselves up for difficult times in the future,” he says.

“Premium stocks tend to trade at premium valuations,” he says. “If the stock market corrects or interest rates rise, as has happened recently, those are the stocks that are going to take it on the chin the most.”

So, while the overall stock market is “holding up just fine,” popular stocks like Apple, Amazon and Tesla have all lost money so far in 2021.

Finally, while the Federal Reserve Bank has said it doesn’t plan on raising its target interest rates, the interest rates the Fed doesn’t control have been rising rapidly. That suggests some concern about inflationary pressures.

Hear more from Stewart about these topics, as well as his thoughts on when the Fed will blink in the video above.

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