What could changing attitudes to benefits mean for stock markets?

Personal Investing

19 March 2021

The pandemic would appear to have changed attitudes towards the giving and receiving of benefits.

In what has been a generally cold start to March, one of the largest approved rescue packages in US history – President Joe Biden’s $1.9 trillion stimulus plan – has brought a distinct warmth to American citizens.

The details of the benefits package include direct payments to individuals, as well as aid to local governments. But given the difficulty of getting large support packages approved historically it’s perhaps worth taking a step back to look at how these policies have come about now.

Not so long ago, members of the Republican party were dominated by those who were strong supporters of being distinctly cautious on government spending plans. There was no shortage of attacks on the policies of Biden and the Democrats. But that opposition has died down considerably.

Today, President Biden’s COVID-19 relief bill is simply one of the most popular pieces of US legislation in recent decades. It has a net approval rating of around +50%. It’s even backed by a majority of Republican voters. Frankly, it’s rare to get anything liked so broadly.

So why have attitudes towards government support changed?

UK attitudes towards benefits
More positive attitudes towards benefits are not just a US phenomenon. A recent YouGov poll1 showed a remarkable shift in the UK, too. Since 2014, the percentage of the population that thinks benefits are too high, or too low, has completely switched: 35% of Brits now deem benefits too low and only 15% see them as too high. The bottom line appears to be that the political path of least resistance is to encourage a backdrop that may encourage consumers to spend more money.

Possible implications for stock markets
So, what does this mean for stock markets? The most economically sensitive companies can be, in our view, a good way of tapping into investor optimism regarding economic growth. While stock markets have experienced fluctuations in share prices recently, we see the overall trend as favouring ‘cyclical’ company shares – i.e. those companies which stand to benefit from the forthcoming re-opening of economies and the easing of lockdown measures. Typical examples may include leisure and travel stocks.

So, is the recent period of good performance for cyclical company shares likely to continue? These types of companies, historically, have done well when forward-looking surveys on the health of economies are improving. At the time of writing, such surveys are showing considerable improvement since activity plunged at the start of the pandemic to the extent that some, we believe, may be close to peaking.

So, given the rise of some of these shares already, we wonder if investing in these types of companies is a case of it being better to travel than to arrive?

1 The Times as at March 2021.

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