More stimulus checks from Trump are needed to prevent a stock market plunge: strategist

After a rally in stocks since late March fueled on pure hope around the pace of economic recovery post the worst of the COVID-19 pandemic, the markets may be starting to cry out for their latest pound of flesh to keep stocks moving higher.

And the needed flesh will probably not come in the form of negative interest rates from Federal Reserve chief Jerome Powell (which he promptly downplayed this week). Nope. So what the market — which has been hit with a fresh round of profit-taking this past week — probably wants is another round of stimulus checks from the Trump administration mailed straight to the mailboxes of struggling U.S. consumers in the hopes they go out and spend. Many strategists believe the first round of checks — which are still being shipped out — have either gone into savings or used to pay bills.

“What we need is the consumer to be able to come back. We are a consumer-based economy. We need to have stimulus that helps people, helps the consumer come back in a more meaningful way than we’re looking at right now,” explained Miller Tabak chief strategist Matt Maley on Yahoo Finance’s The First Trade.

Maley may be onto something judging by the reads on the U.S. consumer at the moment.

March retail sales data showed an 8.7% plunge from the prior month. Most experts Yahoo Finance has talked with suggest consumer spending remained abysmal in April and right into May. Citizens Bank’s consumer banking chief Brendan Coughlin, for instance, told Yahoo Finance debit card spending continues to be down around 40%. Meanwhile, new data from MasterCard on Wednesday showed “switched volume” (a gauge of consumer spending) fell 12% in the U.S. for the week ended May 7.

April marked the third straight decline in consumer sentiment, as measured by the University of Michigan.

Consumers need to spend again

With the U.S. unemployment rate hovering around 15% — and expected to head higher — it’s clear U.S. consumers aren’t in the spending mood because of the fear of job loss or due to newfound unemployment. That presents financial and stock price risks for all sorts of public companies — from retailers such as Macy’s to truckers like FedEx. Another round of stimulus checks would go a long way to encourage people to spend again — beyond paying off bills — and get the economy firing on several cylinders.

It’s unclear if those new checks will be arriving anytime soon, however.

WASHINGTON, DC – APRIL 29: U.S. President Donald Trump’s name appears on the coronavirus economic assistance checks that were sent to citizens across the country April 29, 2020 in Washington, DC. The initial 88 million payments totaling nearly $158 billion were sent by the Treasury Department last week as most of the country remains under stay-at-home orders due to the COVID-19 pandemic. (Photo by Chip Somodevilla/Getty Images)

Under a $3 trillion proposal this week from the Democratic controlled U.S. House of Representatives dubbed the HEROES Act, a second round of stimulus checks would include $1,200 per family member and up to $6,000 per household. Republicans in the Senate quickly shot down the plan, mirroring the hesitance by the White House to enact another large relief package. The White House is reportedly open to additional stimulus checks to households.

In the first relief package called the Coronavirus Aid, Relief, and Economic Security (CARES) Act, individuals were eligible for up to $1,200 (depending on income level) or $2,400 for married couples. Children under 17 were granted $500. The HEROES Act would offer dependents $1,200 per eligible household for up to a maximum of three dependents.

“I do look at something like the stimulus checks and wonder how much of that is coming back into the system,” says AdvisorShares CEO Noah Hamman.

A new round of checks may alleviate Hamman’s concerns…and those of a jittery market.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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