US President Joe Biden has finally signed the $ 1.9 trillion US financial support package, triggering a surge of excitement in the markets, with Nasdaq recovering sharply and ten-year bond yields being under pressure. Of course, they remain at levels above 1.5% but the strong upward trend has been halted. On the other hand, VIX volatility index has recorded a violent decline, which is again moving close to level 20.

According to estimates, the approved package could lead to a 7.4% increase in GDP on an annual basis. Among the sectors that are expected to be significantly favored are the retail, catering and even more specifically chains such as McDonald’s and Burger King. In addition, airline companies are expected to benefit as the support package is addressed to them as well, while with the gradual opening of the US economy, we expect real estate management companies (REITS) to be in the spotlight, especially in the commercial real estate sector.

Americans have significantly increased their savings over the past few months and with the new allowance they will take, their consumption as well as their investments are expected to continue to increase. After all, in 2020 the amount of funds invested by small investors in the markets was the largest in recent years. This wave of inflows is expected to further support the rise of stocks.

What many investors seem to continue to valuate incorrectly is that combining financial support measures with the gradual opening of the economy will lead to faster growth than many economic valuation models have so far predicted.

Huge liquidity in companies - where will this money be placed?

Apart from investors, however, huge liquidity has also been accumulated by American companies, whose funds have amounts totaling more than $ 2.1 trillion. Considering that the cost of servicing any of their loan liabilities is almost zero, companies are expected to use a significant portion of this capital either to increase their dividends or to repurchase own shares or even do productive investments. Especially in terms of repurchases of own shares, this can boost markets’ momentum, which will support our rather optimistic scenario for the outcome of 2021.

In the chart below it becomes clear that the repurchases of own shares for the three previous quarters are almost 50% lower compared to the period 2018-2019. If the data for the beginning of 2021 show that companies have indeed started buying own shares again, as at least it appears in various announcements, then the return of the sovereign buyer will be confirmed and this will be great news for the markets.

How will the return to normality affect savers?

The return to economic normality will also trigger changes. We had highlighted this many months ago, but this is not just about companies, investments, our daily lives. It also concerns the regular saver who now has to completely change the way he handles his savings. The reason is simple and we will try to analyze it briefly to understand that is someone does not make good use of savings, then savings will be reduced in the coming years.

The trillions in support packages, but also the sharp increase in economic activity are quite likely to trigger an inflation rise. On the other hand, central banks are determined to keep interest rates very low and at the same time as they have made it clear (mainly the Fed) to allow inflation to move even higher than 2% for some time.

The above strategy is by no means accidental. It aims to generate negative real returns in order to activate funds that stagnate in money market products and other similar products in order to have a capital flow towards the support of the economy and the markets. This is the new reality. The traditional saver should look for specialized solutions in order to stop the losses of his savings.

This environment becomes demanding even for bondholders as their average annual yield in the coming years is quite likely to be lower. At XSpot Wealth we continue to hold positions in selected bond categories (via ETFs) in order to maintain a strong income stream and at the same time reduce volatility in our investment portfolios.

Having as a selection criterion the investment profile of the client, we try in a specific way to expand his investment options as the creation of long-term added value in a portfolio is achieved through a satisfactory diversification.

For us, this represents a completely different philosophy. It represents a fully objective depiction of reality. What we want to make clear is that a traditional saver, who is conservative, does not mean that he cannot have diversification, for example in a stock ETF. This diversification may be 5% or 10% of his total savings but this not only does not change his profile but significantly increases his future returns.