Trump’s executive orders provide pandemic (& investor) relief

Stocks are higher and yields are flat on Monday in response to US President Trump issuing executive orders to extend economic relief to Americans.

US President Trump has issued an executive order and three special memoranda over the weekend with the intention of addressing unemployment assistance, an eviction moratorium, student loan relief, and the deferment of payroll taxes.

The executive action is both a holdover and a fallback since negotiations in Congress for a second stimulus bill have so far come to nothing.

Chart: S&P 500 Nearing Record High

Investors continue to buy the dip - presumably anticipating a second multi-trillion $$ stimulus bill is passed.

What’s in them?

1. Payroll tax holiday
Would allow employers to defer payment of employee-side Social Security payroll taxes through the end of the year for Americans making less than roughly $100,000 annually. In theory payments need to be paid at the end of deferral period but the President has said he intends to forgive the deferred payroll taxes and make permanent payroll tax cuts if he is re-elected in November. It is likely worth on average $1,200 per worker over four months according to economic adviser Larry Kudlow

2. $400 bonus unemployment
The extended unemployment benefits ran out a week ago. This would extend them by the smaller around of $400 per week instead of the $600 in the CARES Act - the first stimulus bill. 75% of the funds would come from the Federal ‘disaster relief fund’ while State governments would cover the remaining 25%.

3. Protection against evictions
The President cannot extend the eviction moratorium but has offered support to tenants from evictions via the Health Secretary declaring a national emergency.

4. Freeze on student loan repayments
Trumped ordered the continuation of parts of the CARES Act including no need for students to pay back student loans through December 31 and interest rates are set to zero percent.


So far investors have reacted mildly positively to Trump's measures. What is there to like and not to like for investors? We summarise here:


Glass half full

The executive orders limit the 'cliff-edge' potential of Democrats and Republicans reaching no agreement on more stimulus- or taking a long time to find it. It’s a “this is better than nothing, for now” viewpoint.

The July jobs numbers topped expectations in Friday’s NFP but the longer negotiations went on, the bigger the chance of a big jobs reversal in August.

The main assumption here from investors is that the move from the Republican White House puts pressure on the Democratic House to compromise. If Democrats moderate demands that they might have otherwise held out for, there is more chance a deal can be reached soon.


Glass half empty

There are a lot of legal question marks, especially about the Executive Branch ‘controlling the purse’ of government, with regards to the unemployment benefits. When push comes to shove, these orders may not actually be legally enforceable. 

Some Democrats have threatened to sue but it wouldn’t be a good look to appear to block unemployment benefits in the middle of a crisis and just before an election.

There is a chance that the move from Trump creates further political divide and delays the second stimulus bill even further. It could also embolden Republicans to hold out for a leaner package, meaning less support for the economy.